The mortgage will be available to sole company directors and their partners and will base affordability on both the salary taken by the customer and the company profit for the financial year.
Although leaving profit in a business can be a positive way to strengthen the balance sheet of a company, the lender explained that this could also reduce the chance of a small business owner getting a mortgage.
The deal, which is available from Monday 22 June, is designed to reflect the true earnings of sole company directors who choose to keep some profit in their business, rather than drawing it all down as salary, Kensington said.
For example, a customer on a salary of £10,000 and a company profit of £94,000 for the financial year after taxes, would provide Kensington with £104,000 of income that could be used for affordability.
Keith Street, head of Kensington, said: “We recognise that for many directors of small companies, salary and dividends on their own are not a true reflection of their income and affordability. Which is why we can now make affordability assessments taking into consideration a company director’s share of profits in addition to their salary.”
David Hollingworth, associate director of communications at London & Country Mortgages, said: “Self-employed homeowners have been hit by tougher lending rules in recent years and can struggle to meet rigid income proof requirements. It’s therefore crucial that lenders continue to evolve their approach to provide more flexible solutions to self-employed borrowers.”
