How lending amount is calculated

[paul2001paul]

Hi, I am self employed and have 5 yrs accounts with sa302's. Does anyone know how the amount that can be loaned is calculated? My profit for the last 5 yrs has increased substantialy each yr. Is the loan amount based on the last yr or an average of the last 2 or 3 yrs. Alternatively does anyone know anyone I can call who would be able to advise, thanks loads and loads.

[IFA]

Hi there,

Most lenders use an affordability assessment to work out your maximum loan amount these days rather than the simple Income Multiple type calculations that used to apply before the recession.

To calculate the income that lenders allow for a self-employed person they all use slightly different methods but in general - if your profit in the most recent year is lower than the year before then they will use the most recent (lower) figure only, if your profits are increasing then they will take an average. Some lenders will average the last 2 years, others will average the last 3 years.

As a result you might find a significant difference in your lending capability between a selection of lenders.

Best of luck.

[Enness Private Clients]

Most lenders will use 4-5 times what you have drawn from the company (salary and dividends) either based on the last 2-3 years average. A couple of lenders will use your last year only or an average of your last year and and projection for this year.

Speak to a decent broker and they will quickly establish what your options are.

[paul2001paul]

Thank you both for your concise replies, the reason I ask is our business (wife is a 50% partner) is in the last 3 yrs we have increased our profits 3 fold so a 3yr average would be very bad, I will take your advice and contact a broker.

[New Homes Expert]

You need to talk to a broker.

[ComareTheMortgageMarket]

Ill echo what Ennes Private Clients says as a fair number of lenders will just use the latest years accounts as a lot of self employed clients income does increase on a scale such as yours. They will only be overly concerned if you are showing declining profit.

[brian]

This is where self-cert mortgages really used to come into their own - heck, what they were made for, before being abused to meet mortgage sales targets.

However, hopefully there may be something still around.

[ComareTheMortgageMarket]

The days are gone where anyone could get a mortgage, shame though! Sensible lending has come into play which is a good thing overall.