"In the right circumstances, net profit can be seen as income that is available for the customer to take in the form of dividends at any time."
- Ryan Brailsford, business development director at Pepper Money
Pepper Money has enhanced its self-employed criteria, introducing the ability to use net profit retained within the business as part of the affordability calculation.
Under the new criteria, Pepper Money will be able to use the latest year’s net profit within an affordability calculation where a customer is a majority shareholder in the business.
The specialist lender will use the share of net profit in line with the customer’s share of the business. So, for example, a 60% shareholder would take 60% of the net profit figure. Where joint applicants have a combined shareholding of 100%, Pepper Money will take 100% of the net profit.
This improvement to Pepper’s self-employed criteria is designed to meet the needs of those customers who choose to retain profit within a business for use towards a future tax bill or capital investment but also want to use the full earnings to which they are entitled for affordability and LTI purposes.
Ryan Brailsford, business development director at Pepper Money, said: “In 2023, there were an estimated 5.6m UK private sector businesses, with 75% of these not employing anyone aside from the owners of the limited company.
"There are often occasions where a limited company director may decide to retain some of the net profit within the business instead of paying it all as dividends. Profit may be kept in the business to facilitate further growth or for tax purposes, and in the right circumstances, net profit can be seen as income that is available for the customer to take in the form of dividends at any time.
"According to data by Statistica, there has been a growing trend in self-employed profitability in recent years, and this increases the cohort of customers who may be looking to retain cash within their business instead of removing it all and paying as dividends.
"By introducing this new criteria that considers retained net profit within an affordability calculation, we’re further demonstrating our commitment to serving the self-employed and making it easier for them to secure the mortgage they deserve.”
David Hamblett, director at New Wave Financial Services, commented: "Affordability continues to be a significant challenge for many mortgage customers, particularly the self-employed, who often choose to only draw the income they need from a business. This approach is more tax efficient, but it can also limit their borrowing power when it comes to getting a mortgage. This criteria enhancement by Pepper Money is a welcome change to address the needs of the self-employed. By basing affordability calculations on net profit retained within the business. Pepper is giving those customers the opportunity to achieve a mortgage that more accurately reflects their earnings, resulting in them being able to purchase their ideal home.”
