Clydesdale Bank is set to implement a series of changes to its self-employed mortgage assessment policy, effective from Friday 18th July.
The updates will impact how income is assessed for self-employed applicants and include adjustments to loan-to-income caps and other eligibility criteria.
One of the most significant changes involves how gross income is calculated for limited company directors who own 25% or more of the business.
Under the current policy, Clydesdale Bank uses a two-year average of the director’s share of net profit before corporation tax, combined with their director’s salary.
From 18th July, this will change to a two-year average of the share of net profit after corporation tax, plus the director’s salary.
The lower of the two years will still be used, in line with the existing policy. There will be no changes for other trading entities such as sole traders, partnerships, and LLPs.
In addition, the bank is expanding its maximum loan-to-income (LTI) ratio for residential mortgage lending involving self-employed applicants.
The LTI cap will increase from 4.49 times income to five times income.
However, for residential remortgage applications up to 85% loan-to-value (LTV) with no additional borrowing, the LTI cap will remain at 5.50 times income for all applicants, regardless of employment type.
Clydesdale Bank is also introducing further updates to other parts of its self-employed lending policy.
The minimum trading period required for applicants will be reduced from three years to two years.
Furthermore, the timeframe for accepted financial accounts is being extended.
Previously, the end date of the last financial year reported had to be within 18 months of the mortgage application date; going forward, this window will be extended to 21 months, provided accounts are not overdue under government filing rules.
Brokers and intermediaries are advised that applications submitted before 5pm on Thursday 17th July will be assessed under the current policy.
After this time, the bank’s online application system will be temporarily unavailable for updates, with the revised policies taking effect from 6pm that evening.
Clydesdale Bank has also indicated that further changes will be announced on 18 July, aimed at supporting foreign national applicants.
These are expected to include an increase to the maximum LTV, a broader list of accepted visas, and reduced minimum time requirements remaining on visas. Full details will be provided on the day of the policy change.
