As we approach the end of the year, self-employed individuals are once again reminded to ensure their tax calculations are complete, as mortgage lenders are set to tighten their requirements for proof of income. Starting from October 6th, 2023, lenders will demand the latest income documents to assess affordability, and the income tax for the relevant year must be fully paid. This announcement comes as a potential stumbling block for self-employed mortgage applicants, who often find it frustrating and confusing, as the legal deadline for tax calculations is not as stringent as the lender’s demands.
Self-Employed Income Evidence Mortgage Criteria
Typically, self-employed individuals have until January 31st of the following year to complete their tax calculations for the previous financial year. Leading many self-employed people to wait until then to complete their calculations. However, for those looking to secure a mortgage, this delay is not acceptable. Lenders require more up-to-date proof of income, as income documents that are over 18 months old are deemed insufficient for mortgage assessments.
Santander Self-Employed Proof Of Income
Recently, Santander sent out an email to brokers reaffirming their stance on the cut-off period for self-employed income documents. The email stated, “For all self-employed income evidence, the most recent year-end must not be more than 18 months before the date of the application.” In practical terms, this means that for mortgage applications submitted from October 6th, 2023, the evidence of the most recent year-end cannot pertain to the 2021/2022 tax year. Instead, applicants will need to provide more current income evidence to meet the lender’s requirements.
Guidance For Self Employed People Looking To Get A Mortgage
The tightening of rules around proof of self-employed income has several implications for those looking to secure a mortgage. Here’s what you need to know:
1. Plan Ahead: Self-employed individuals must plan ahead and ensure their tax calculations are completed well in advance of applying for a mortgage. Waiting until the January 31st deadline may leave you with outdated income documents that could jeopardise your application.
2. Keep Records: Maintaining meticulous records of your income and expenses throughout the year can streamline the process of completing your tax calculations. This not only helps with mortgage applications but also ensures you meet your legal tax obligations.
3. Consult a Tax Professional: For many self-employed individuals, navigating the intricacies of tax calculations can be challenging. Seeking advice from a tax professional can help you meet both legal and lender requirements.
4. Be Prepared for Delays: If you’re unable to provide the necessary income documents, your mortgage application could be delayed or even rejected. It’s crucial to understand the specific requirements of your chosen lender and work towards meeting them.
Speak To A Mortgage Broker
The recent communication from Santander serves as a reminder that self-employed individuals must be proactive in managing their financial affairs, especially when it comes to mortgage applications. While the legal deadline for tax calculations may provide some leeway, mortgage lenders demand more up-to-date proof of income to assess affordability. Planning ahead, keeping accurate records, and seeking professional guidance from a qualified mortgage broker are crucial steps to ensure a smooth mortgage application process in an increasingly stringent lending environment. Call or email our team today if you have any questions or need any guidance. We are here to help.