Self Employed Mortgages and Partnerships
The Mortgage Applicant who is a Partner in a Partnership will be entitled to a share of the profit from that Partnership.
A Mortgage Lender’s key concern is that value of that share of profit before income tax.
Proving your income
Most Partnerships engage an Accountant and therefore accounts are often (but not always) prepared and available to provide to the Lender.
As with Sole Traders, Partnerships will want to claim as much as possible on their business expenses to reduce their income tax bill. This lowers the Partnership profit and impacts on maximum mortgage lending for the Partner.
What to watch out for
You will be asked for proof of income over three years in the forms of Partnership accounts or your own Self-Assessment return.
Your share of Partnership Profit (taxable income before personal allowances) will be the figure on which the Mortgage Lender assesses your affordability. Lenders will average out that profit over three years. Evidence of dropping profits will cause the Lender to consider the long term sustainability of that profit.
If your Partnership does not have a record of three years trading, most Mortgage Lenders will not consider you.
Mortgage Lenders need the most recent Partnership Accounts or SA302 to cover a trading period ending within the past 18 months.
As a Partner of a business, you should not be approaching Lenders direct as they all underwrite cases in different ways. For example, a Partner with less than 25% interest in the business may be underwritten as ‘Employed’ by some Lenders. You should ask an experienced Independent Mortgage Broker to help you arrange your mortgage.
Once your Mortgage Broker understands your situation, they can accurately assess Mortgage Lenders that are most likely to accept your case and the most favourable rates.
If you are asked for your income by your Mortgage Broker, quote your Partnership Profit – they are looking for your share of income from the Partnership after business expenses, but before tax.
If this profit varies over the last three trading years, please quote the average (total and divide the result by three). If your Partnership shows declining profit in recent years, make your Mortgage Broker aware of this at the outset, so that they can handle this appropriately.
Be prepared to provide Partnership accounts as prepared by your Accountant, or your own SA302’s to cover the last three trading years. Some Lenders will write direct to your Accountant for an Accountant’s reference.