Kensington Mortgages is launching a new policy for self-employed customers, with affordability criteria taking into consideration a company director’s share of net profits in addition to their salary.
The mortgage, set to be launched on 22 June, is available to sole company directors and their partners, designed to reflect the true earnings of entrepreneurs who choose to keep some profit in their business rather than draw it all down as salary.
Kensington’s own research, among a nationally representative sample of 100 mortgage advisers, showed 37 per cent think self-employed borrowers struggle to prove their income, compared with just 3 per cent of employed customers.
The vast majority of lenders will only consider salary and dividends when assessing the affordability of self-employed customers, with Kensington claiming to be the only lender able to consider both profits and salary based on a customer’s previous year’s accounts.
Keith Street, who heads up the mortgage arm of the firm, stated: “We recognise that for many directors of small companies, salary and dividends on their own are not a true reflection of their income and affordability.”
Aaron Strutt, product manager at brokers Trinity Financial, said that they speak to a lot of limited company directors who leave money in their business and there are only a handful of lenders willing to offer them a sufficiently large mortgage.
“Conventional underwriting often discriminates against borrowers who do not need to withdraw all of their potential income from their business by only accepting salary and dividends when assessing affordability.”
David Hollingworth, associate director of communications at London and Country Mortgages, added: “Self-employed homeowners have been hit by tougher lending rules in recent years and can struggle to meet rigid income proof requirements.
“It’s therefore crucial that lenders continue to evolve their approach to provide more flexible solutions to self employed borrowers.”