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Halifax updates income calculation for self-employed

Christina Hoghton
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Christina Hoghton

Lenders are looking closely at the earnings of the self-employed, especially where they have been affected by the pandemic

Halifax has made changes to the way it calculates income for self-employed borrowers whose earnings would have made them eligible for a Self-Employed Income Support Scheme (SEISS) government grant.

The SEISS grant was opened to self-employed workers with trading profits of no more than £50,000 in May last year.

What’s changed?

To assess affordability, Halifax will now use the income submitted for the previous year if it is up to £50,000 and lower than the latest year’s figure.

If income for the previous year is more than £50,000, Halifax will use either the latest year’s figure or the average of the last two years, whichever is lower.

For example, if your income for the latest year is £60,000 and £40,000 for the previous year, £40,000 will be used for the affordability.

If your income is £60,000 in the latest year and £55,000 in the previous year, the income used for affordability will be £57,000, which is an average of the last two years.

Halifax said the income for the previous year would always be considered to ensure it had an accurate representation of earnings.

The bank will still accept borrowers who have received and include an SEISS grant in their income. The change is expected to reduce delays in the application process, Halifax said.

In May, HMRC admitted there could be delays with self-employed workers receiving their 2020/21 tax year overview due to eligibility checks. At the time, the tax department said backlogs were down to taxpayers including an incorrect return for the SEISS grant.

Halifax’s said it wished to “continue to support self-employed customers who have taken grant income to maintain their previous level of income”.

The bank will still consider applications where a borrower has only been trading for one year. In this instance, affordability will be based on the latest year only and additional information may be required.