Maximum borrowing after a jump in self-employed income
Priya, 34, is an NHS staff nurse earning £41,200 and is covered by NHS sick pay. Daniel, 37, has been a sole trader graphic designer for two years and seven months; his SA302 shows net profit of £52,400 for 2024/25 and £38,900 for 2023/24. They have two children, aged 3 and 5, with childcare of £760 a month. Daniel carries £9,600 across two credit cards on a 0% deal ending in four months, a car loan of £312 a month with 34 months left, and a Plan 2 student loan. Their deposit is £46,000, which covers 10% of a £310,000 purchase plus costs. They want to borrow the maximum available over 35 years. Daniel asks the adviser to 'stretch' his income figures so they can afford a £330,000 house, saying a friend's broker 'did it for them'.
1. What income evidence should be obtained, and how is Daniel's earnings likely to be assessed by a lender?
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Evidence. Because Daniel is a sole trader, the lender is interested in his share of net profit, not turnover. Obtain his SA302 tax calculations and HMRC tax year overviews for 2023/24 and 2024/25 (the overviews prove the returns were actually filed and the tax paid), plus three to six months of business bank statements and, where the latest accounts are not finalised, an accountant's certificate.
How the figure is derived. Two years and seven months of trading clears the two-year minimum most lenders apply, but the rise from £38,900 to £52,400 creates a judgement point: some lenders take the latest year, some average the two (£45,650), and some take the lower year where profits are volatile. The adviser should not assume the highest figure is available and should prepare the case on the figure the evidence will support. Adjustments matter: lenders may add back depreciation or one-off capital purchases, but will deduct the Plan 2 student loan repayment (9% of income above the threshold) as a commitment.
Priya. Salary is verified by payslips and P60; confirm she is not on reduced hours or maternity leave, and check her contract is permanent. Her sick-pay entitlement is irrelevant to borrowing capacity but highly relevant to protection.
2. Assess affordability. What must the adviser consider beyond a simple income multiple?
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There is no regulated income multiple such as 4.5 times salary. Under the affordability rules the firm must carry out a balanced assessment of income against committed and unavoidable expenditure and be able to justify the result.
Deductions. The car loan is £312 a month for another 34 months. The two cards (£9,600) will be treated at a percentage of balance (commonly 3–5%) or the contractual payment, whichever is higher - roughly £290–£480 a month once the 0% deal ends. Childcare at £760 a month is significant, though lenders may only apply it for a limited number of years given the children's ages. Add council tax, utilities, insurance, food, transport, pension and a contingency.
Rate stress and term. The FPC/FCA removed the mandatory three percentage point stress test in 2022, but lenders still test at their own stressed rate and must consider future rate rises. A 35-year term lowers the monthly payment but substantially increases total interest and would run to Daniel's age 72, which many lenders will not accept - the term may be cut to around 32–33 years, raising the payment. The adviser should also test the case if Daniel's income falls back towards the earlier year's level, because self-employed income is variable. The maximum the lender offers is a ceiling, not a target.
3. How should the adviser respond to the request to inflate Daniel's income, and what should be recorded?
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The request must be refused clearly and explained, not deflected.
Why refusal is mandatory. Submitting income the adviser knows to be unsupported is a fraudulent misrepresentation. It engages the Fraud Act 2006, breaches the FCA's conduct rules (integrity; dealing with the lender in an open and co-operative way) and the mortgage conduct rules on responsible lending, and would expose the firm to enforcement action and the client to a voided offer, a demand for immediate repayment, a CIFAS fraud marker and potentially criminal liability.
Practical explanation to Daniel. The lender will verify against HMRC data and payslips, so inflated figures are usually detected pre-offer or at a post-completion audit. If the inflated application completed, the family could lose the home.
Constructive alternative. Show Daniel the verified maximum and the arithmetic of the gap: a £330,000 purchase needs roughly £20,000 more deposit, or the cards cleared, or a lower price. Suggest clearing the card balances before applying, waiting for a further year of accounts, or buying at £310,000 now and moving later.
Records. Note the request and the advice given, the verified income figures with sources, the affordability calculation including stressed rate, and a suitability report explaining why the recommended amount and term are affordable and sustainable. Do not record Daniel as having been 'advised' of something he was not told.