How does its updated policy support self-employed borrowers?
Pepper Money has updated its lending criteria for self-employed borrowers, allowing net profit retained within a business to be included in affordability calculations.
Under the new guidelines, the specialist lender will use the most recent year’s net profit when assessing affordability for customers who are majority shareholders in their business. The share of net profit used in the calculation will correspond to the customer's ownership stake. For instance, a borrower with 60% ownership will be able to use 60% of the business’s net profit, while joint applicants holding 100% of the shares can include the full net profit.
Pepper Money’s changes are designed to support self-employed customers who retain profits within their business for tax purposes or future investment but still wish to use their full earnings for affordability and loan-to-income (LTI) assessments.
“In 2023, there were an estimated 5.6 million UK private sector businesses, with 75% employing only the owners of the limited company,” said Ryan Brailsford (pictured), business development director at Pepper Money. “Often, limited company directors retain part of their net profit in the business to facilitate growth or for tax efficiency. In such cases, net profit can still be considered income that could be taken as dividends at any time.”
Brailsford added that the lender’s updated criteria reflect growing trends among self-employed individuals to retain cash in their businesses.
“By including retained net profit in our affordability calculations, we’re making it easier for self-employed customers to secure the mortgages they deserve,” he said.
David Hamblett, director at brokerage New Wave Financial Services, welcomed the move.
“Affordability remains a major challenge for self-employed borrowers, who often draw only the income they need from their business for tax reasons,” he said. “Pepper’s criteria enhancement to consider retained net profit in the affordability assessment gives these clients an opportunity to achieve mortgage deals that better reflect their actual earnings.”
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