Pepper Money has relaxed its self-employed criteria to allow these borrowers to use net profit retained within their businesses as part of its affordability calculation.

The specialist lender says self-employed workers will now be able to use the latest year’s net profit of their firms in an affordability calculation where the customer is a majority shareholder.

The lender will use the share of net profit in line with the customer’s share of the business.

It says, for example, that a 60% shareholder would take 60% of the net profit figure. Where joint applicants have a combined shareholding of 100%, the lender will take 100% of the net profit.

The firm says the move, “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 loan-to-income purposes”.

Pepper Money business development director Ryan Brailsford points out: “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.

He adds: “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.”