One way to boost your income is by turning a hobby into a business and setting up a side hustle. But how is the income from this self-employed venture factored into the affordability calculations of your mortgage? Scott Barron of SJ Mortgages explains...
The Question
I’m hoping to buy my first home in the next year and would appreciate some advice on how my income will be calculated when I apply for the mortgage.
I currently work full-time as a teacher in a secondary school and in my spare time I run a business doing wedding hair and make-up. My teaching job has a salary of £42,000 but my earnings for the business can vary greatly. For example, in the summer I took over £15k, which I have saved towards my deposit. However, I now only have two bookings until Christmas. It’s very seasonal, as you can imagine.
How will this be considered when I am applying for a mortgage? Will I have to write off my self-employed salary or will it count towards my home purchase? I have been running the business for two years and have so far filed one tax return.
Scott’s Answer
When applying for a mortgage, lenders will typical consider both of your income sources.
For your teaching job lenders will consider your full salary because it is a stable, consistent income which can be verified via payslips. They may also consider any additional income you may receive such as bonuses or allowances.
For your self-employed business lenders will assess your income differently. The norm is for lenders to look at the average income over the past two years, this gives them a reliable estimate of your earnings. There may be a lender who will take your one filed tax return but in general you will need two.
The seasonal nature of your self-employed income will also be taken into consideration. Lenders understand that certain business, such as the one you run have peak and off-peak seasons.
They may ask for additional documentation to support your income during these times such as bank statements or invoices.
We would be more than happy to guide you to purchasing your first home and answer any additional questions you may have.
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Meet our experts Scott Barron and Jack Tutton
Scott and Jack are co-founders of SJ Mortgages. With over 15 years industry experience and after working for large corporations, they decided to set up SJ Mortgages with the aim to provide their clients with expert advice alongside a bespoke service.
Being a totally independent whole-of-market brokerage enables them to be completely customer focused and deliver a great client outcome. Being whole of market means that they work with over 120 mortgage lenders and have access to over 10,000 products.
A mortgage is many people’s biggest financial commitment; in the current difficult mortgage market Scott and Jack are here to help you navigate the process and get you the best possible result.
Please click this link to their website to find more information, access to a calculator, blogs and to get in touch with SJ Mortgages.
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