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Self employed - quick question

Hi there

I've been reading all the great advice, and I have a quick question before I start debating this properly....

I've been self-employed for nearly 4 years. Accounts are now in the hands of my accountant, so that should all be quite straightforward. Business has been gradually building for the last few years, and the last 16 months or so made a big jump.

Originally I was planning on waiting until this time next year to buy a small house, but circumstances have changed somewhat, so I'm considering moving that up by 6 months or so. I have already have around 20% deposit saved, and that'd grow somewhat by the time I get to move anyway.

Question is, when mortgage companies are considering income, do they work out affordability based on the most recent year (and/or projections for current year), or on an average of the last 2 or 3 years? Or does that vary by company? If it does, are there any particular companies to consider?

Many thanks for your help!

Victoria

Comments

  • yelf
    yelf Posts: 862 Forumite
    Part of the Furniture 500 Posts Combo Breaker
    for self emlpoyed they will want to see the last 2 or 3years of accounts, and base it on this
  • Thanks yelf, I understood that, and the accounts will be ready. I'm just interested, if the business is building, so one year is £20k and the next year £35k, and current year higher still, which will they use to work out how much they'll lend. Does that make sense?
  • Mrs_Bumble
    Mrs_Bumble Posts: 1,028 Forumite
    They will look at the last 3 years as you have them and depending on their risk assessment of the profile they will either base affordabilty on the average of those 3 years or the lowest year. But as you say that business has steadily improved the liklihood is that they will base lending on an average. There are plenty of lenders out there that will look at things differently and so might be worth your while to look out a good independent mortgage adviser in your area that can match the likely scenario to the best lender.
    I am a Mortgage Adviser

    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • adj_2
    adj_2 Posts: 47 Forumite
    Sounds like you're in a similar boat to me - I have just had a mortgage approved. I have been self employed for three years. In terms of figures, the lender took an average of three years and also noted my forecasted figures for next year. I also had to give my permission for them to request a reference from my accountant.

    Sure, they're looking at the figures a lot more than they did for my last mortgage, but all in all the whole process wasn't as problematic as I thought it would be. The lenders just seemed to be trying to use the figures the best way they could in order to ensure my application was approved by the underwriters.
  • koexelek
    koexelek Posts: 7,847 Forumite
    alwaysbusy wrote: »
    Thanks yelf, I understood that, and the accounts will be ready. I'm just interested, if the business is building, so one year is £20k and the next year £35k, and current year higher still, which will they use to work out how much they'll lend. Does that make sense?

    If you have rising profits, Nationwide will take the most recent full year, but not a projection
    I am a Mortgage adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • tilbarn
    tilbarn Posts: 7 Forumite
    Hi Yelf, I've just been looking at this thread and I wonder if you could be a bit more specific (for my own interests)? You said
    yelf wrote: »
    for self emlpoyed they will want to see the last 2 or 3years of accounts, and base it on this

    From that, do you mean lenders would likely base their lending on an average of these last 2-3 years of accounts as other responses in this thread seem to indicate, or do you mean they look at the last 2-3 years for a trend, but base their lending decision on the most recent (last year) of accounts?

    Your thoughts would be much appreciated.

    Many thanks :beer:
  • Thanks, that's great info. I have more investigation to do!!!
  • happybroker
    happybroker Posts: 1,301 Forumite
    Lender's policies vary on this, some average some take the last year, some will look at retained profit, some only what is drawn as an income. Nationwide are generally pretty good but if you are unsure then a quality whole of mraket broker will be of use to you.
    Happily an ex mortgage broker!
  • herbiesjp
    herbiesjp Posts: 8,499 Forumite
    The general consensus is that every lender is different

    However you have not posted any figures i.e. NET profit for the last 3 years and the mortgage amount needed.

    The reason I ask, is that it may actually be irrelevant how the lender works out your mortgage amount, as you may fit the criteria with any method.

    At the moment, you are getting lots of answers but no specific ones, as you have not put the specific figures

    Also do you have any other debts ?
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Vague answers were close enough for me to consider it an option, so thank you.

    I've been talking to various mortgage lenders this morning, and most have said that they will take the most recent year as long as there's an upward trend, which there is.

    Nationwide, Halifax and Alliance & Leicester are looking most promising at the moment.

    Thanks for all the help!
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