Self-employed advice required

pokey128

Hi
My partner is self-employed as an Advocate (scottish equivalent of barrister). He has 6 years of accounts but last year he changed the type of work he does to be more legal-aid which means a long lag time between doing the work and getting paid. Basically he didn't get paid anything for the last 5 months of 2008/2009 financial year so his income took a dip before shooting up once the money came in.
We have a mortgage with FD just now but are looking to move in the next year but I am worried about what companies will think of this dip in income if that makes sense. If they are looking for 3 years accounts is it worth not looking for a new mortgage until the low year becomes year 1 of the 3 or is there another way round it? It just seems unfair if they take the lowest years income in this situation.

Many thanks for all help x

robin_banks

This is the exact reason why lenders do require 3 years accounts, they don't take the lowest into account, they average them out over the period.

3 years does seem reasonable tbh.

pokey128

Thanks for this - I had thought that they only took the 3 years average if it showed an upward trend and otherwise they took the lowest year.
x

RufusA

Also bear in mind that the accounts should show a true and fair view on an accrural basis.

In laymans terms the work carried out in the 2008/09 financial year should show in the accounts as work done (accrued for and shown as a creditor if invoiced) but not paid (realized).

So the 2008/09 accounts should look as healthy as the 2007/08 accounts just the bank balance in that year may not.

HTH - Rufus.

Conrad

If the most recent year shows a dip, lenders tend not to average as in many instances a dip reflects a worrying trend and thier cumbersom computer says no models aren't able to accomodate a situation like yours.

Thankfuly there are some common sense lenders out there but I'm not sure First Direct are one of them.

Imagine yourself as an undwerwriter. You wont have specific knowledge on Barristers income struture per see, afterall there are thousands of different types of occupation so its imposible to 'make it up as you go' or make a value judgement just because one particualr applicant says the dip is merely a strutural blip.

In otherwords you'll be heavily reliant on a judgement call by an underwriter - ignore what call centre staff tell you up front.

In the back of the underwriters mind ALWAYS is the reposession court hearing - "Mr underwriter you leant in the clear knowledge that income was by no means guranteed and subject to any number of factros and criteria being met, whereas you instead could have waited for the applicant to unequivocally proove income via Tax accounts, and as you saw fit to 'take a hunch' and the client is now in arrears I have no choice but to throw out your request for reposession".

Batchy

Your partner is a professional... slightly favourable situation to a plumber, or a carpenter.

He needs to speak to a financial advisor really.
But agree with the accruals basis for preparing the accounts. You can't have your cake and eat it, with regards to limiting tax, therefore earnings. Then expect to bump them back up after, so you can show good earnings to mortgage people.

Generally the reason they rely on self assessments is due to the reliance placed upon them as an official form of documentation, RATHER than filling an application form in.