Self Employed Affordability Criteria

stark2

Hi,

My wife and I currently have a 2yr fixed deal with Northern Rock that is coming to an end in December. I'd like to get a deal with HSBC, but I want to find out what I can about how they assess affordability before I approach them.

Some numbers might help illustrate things....

We run a small business together, and have 3 years of accounts running to March 08.

As with most small businesses, we take a small salary and the rest in dividends.

Our net profit + salary for the 3 years is:

07-08 : £54,000
06-07 : £32,000
05-06 : £17,500

Now, in 05/06, the business was more of a sideline and we had other income.

My concern is that affordability will be measured by an average of the 3 years of accounts - approx £34,500. Given we have a mortgage of about £195,000 against a property valued at around £270,000 I would imagine they would take a fairly dim view of this.

However, at the point of re-mortgaging, we will be 9 months into the 08-09 financial year, and will have projected net profit (+ salary) of around £76,000, if not higher.

So, given the reality that we have over £6,000 a month income per month after tax at the point of needing a re-mortgage, £1,200 a month for a mortgage seems to be very clearly affordable (we have no kids and no other loans). Are the bank likely to see it that way though? Are we better off just sitting on an SVR for 3 months with Northern Rock, and approaching them with 3 years accounts that look dramatically better than the 3 years we can present right now (due to dropping the low 05-06 numbers and replacing them with the massively higher 08-09 numbers)?

For what it's worth, our business banking account has been with HSBC for the whole time, and so would they be any more receptive to giving us a mortgage as we've already been customers with them and they can easily verify the numbers in our accounts based upon our cashflows?

We have never missed a payment on either of the two mortgages we have held, and our credit history should be pretty much perfect I would think (we occasionally let a credit card balance build up before paying it off but never fail to make minimum payments and they are clear now).

I just can't find any information about how HSBC assess the self-employed for their mortgages, and I don't want to wait for weeks for an application to be processed only to find out that they will just laugh us out the room.

Any insight would be greatly appreciated!

_Andy_

Generally tends to be average of last three year's net profit. However as you have a reasonably large projected year's income and also have your business accounts with them I would suggest making an appointment with a mortgage manager who will let you know for sure.
Really hard to say for sure I'm afraid, hence my suggestion to go and see them.

silvercar

When your application goes to underwriting, they should be able to look at the conduct of your accounts. This should help your case.

We had similar with another high street bank. In the additional info section of the application we gave the bank account numbers and the name of our bank business manager, having pre warned him to expect a call from the mortgage dept. Worked for us!

stark2

Thank you both for your replies... I guess I'll go and speak to the business manager as the first step.