Sole traders
Sole traders and partnerships
Most lenders want two to three years of accounts or SA302s with tax year overviews, and will work from an average of the last two years. Some will consider a single year of trading if the rest of the case is strong.
If your most recent year is your best year, that matters. Some lenders average, others use the latest figure, and the difference on the same accounts can be tens of thousands of pounds of borrowing.
Directors
Limited company directors
Lenders vary enormously here and this is where advice earns its keep. Some use salary plus dividends drawn. Others use salary plus your share of retained profit, which can produce a much higher borrowing figure for exactly the same business.
If you have been leaving profit in the company for tax efficiency, a lender using the dividends-only approach will badly understate what you can afford. Knowing which lenders do what is the whole game.
Contractors
Contractors and day rate workers
Many lenders will work from your day rate rather than your accounts, typically annualising it over 46 or 48 weeks, which often produces a better result than the accounts would.
Contract length, how long you have been contracting and the gaps between contracts all matter. So does whether you work through your own limited company or an umbrella.
Variable pay
Bonus, commission and overtime
Treatment ranges from ignoring variable pay entirely to counting all of it. Most lenders sit somewhere in between, using 50% or an average of the last two years.
If a meaningful part of your income is variable, lender choice makes a very large difference to what you can borrow.
Your home may be repossessed if you do not keep up repayments on your mortgage.