Getting a home loan when you work for yourself

A salaried applicant hands over a payslip and the bank knows what they earn. A business owner hands over a set of financials that were prepared to minimise tax, and the bank has to work out what is actually available to service a bond. That gap, not the risk, is what sinks most self-employed applications.

What the bank will ask for

• Two years of signed annual financial statements, prepared by an accountant.
• Management accounts for the period since the last year end, usually no older than three months.
• Six months of business bank statements and six months of personal bank statements.
• A letter from your accountant confirming your drawings or salary.
• A tax clearance position that is up to date, with no outstanding returns.
• Company registration documents and, for a partnership or trust, the founding documents.

The tax efficiency problem

Good tax planning lowers your declared income. Lending assessments read declared income. If you have spent three years legitimately reducing your taxable profit, the bank sees a modest earner, and it lends accordingly. This is the trade off nobody explains until it is too late to change.

There is no trick that resolves this in the month you apply, which is the honest answer. What does work is planning the two financial years before you intend to buy, so that the declared position supports the bond you want. That is a conversation to have with an accountant well in advance, not with a lender at the point of application.

What a properly presented file looks like

A bank assessor is looking for a business that is stable, current and legible. That means financials that reconcile to the bank statements, drawings that are consistent rather than lumpy, a clear separation between business and personal accounts, and an explanation for anything unusual supplied before it is asked for.

Unexplained large deposits are queried every time. If a payment in your statements was a loan from a family member, a capital injection or the sale of an asset, say so in a covering letter with proof attached. Leaving the assessor to guess produces a decline rather than a question.

Structure matters

How you draw from the business changes the assessment. A regular monthly salary through the payroll, with PAYE deducted, reads to a bank almost exactly like employment and is assessed as such. Irregular drawings are averaged and discounted. If you are two years away from buying, moving yourself onto a formal salary is one of the highest value changes you can make.

Why this is worth doing properly

Lenders differ widely in their appetite for self-employed applicants. Some discount drawings heavily, others assess close to the declared figure. A file that one bank declines is frequently approved elsewhere at a competitive rate, so the answer to a single decline is rarely to give up and rarely to accept a punitive rate.

Our accounting desk prepares the financial pack before the application goes anywhere, which is the reason our self-employed files convert at close to the rate of our salaried ones.