Lender criteria on accounts

Very few lenders now look at business accounts when underwriting a personal mortgage. They instead tend to request the client's Tax Calculation Summary (what used to be called an SA302) and use that instead - which bypasses the complexity of the accounts and makes life easier for lenders. A few lenders do however remain using the accounts, which is great if you do not withdraw all your profits each year, and for the most part, the underwriters are well-trained and can read the accounts properly. The fact we still have some lenders using the accounts as proof of income is vital to the market, without them some people would be unable to get the mortgage they want.

Post-Covid things have improved for limited company directors in terms of lender criteria and what is required from borrowers. However, there is still much more that could be done by lenders.

An area most high street lenders could improve in very quickly is how company directors take their income. Not every director wishes to take all funds out of their company via dividends and may leave some 'retained profit' within the company. Very few high street lenders are willing to use salary and net profit to assess income and instead use the customer's salary and dividends. This means that some customers may miss out on better deals because they don't necessarily need to take huge income from their limited company.
Less of a computer says no mentality is required from the high street lenders in regards to the self-employed.

Post-Covid things have improved for limited company directors in terms of lender criteria and what is required from borrowers. However, there is still much more that could be done by lenders.

An area most high street lenders could improve in very quickly is how company directors take their income. Not every director wishes to take all funds out of their company via dividends and may leave some 'retained profit' within the company. Very few high street lenders are willing to use salary and net profit to assess income and instead use the customer's salary and dividends. This means that some customers may miss out on better deals because they don't necessarily need to take huge income from their limited company.
Less of a computer says no mentality is required from the high street lenders in regards to the self-employed.

This is very much down to the lender and what the purpose of the transaction is (residential purchase, BTL remortgage etc).

For affordability purposes, lenders can look at Salary + dividends or salary + share of net profit. Both of these methods can produce different affordability results, which can be extremely helpful under certain circumstances. Lenders will often check the performance of the company and also compare it to the previous year(s) to understand if the business is improving, declining or remaining stagnant. In some instances, they will write to the client's accountant to obtain further information to help provide that peace of mind they're looking for.

Most lenders will want 2 years accounts, but some accept 1-year's accounts which is great for newer companies.

LTD company lending is not as bad as standard self-employed assessment, we have found that lenders are better equiped to spend more time understanding the business and will consider things like seasonal income etc. Some lenders can appreciate that LTD company means better taxes too. I prefer them, but they have their pitfalls. If one year you do very well, take some dividends and then the next year you dont, this puts an instant flag up. Easily manoeuvred, but a delay nonetheless. Make it simpler. Make months of bank statements for anyone who can just prove they are still trading, a thing of the past. Accounts are just a record after all.

Things have moved on considerably since the old school salary and dividends approach. Some use salary and profit pre and some post-corporation tax which can considerably and fairly increase mortgage borrowing; ultimately taking the position that these are funds an applicant chose to not withdraw, but easily could have if a mortgage needed to be paid. Some 'add back' certain company costs like pensions; similarly as they wouldn't penalise an employed client and reduce mortgage borrowing for paying into a pension. If you have a contract for the work you do, many lenders will now use the value of the contract itself, so effectively using gross income for a self-employed person. You could make the argument that as lenders have many different ways to view self employed income, it's actually easier to get a mortgage than if employed.