MSE News: Mortgage blow for the recently self-employed

jockosjungle

coldstreamalways wrote: »

Thank you, I'm currently "employed" but am thinking of leaving for the self employed route in a year or so. If I needed to remortgage a year into my self employed status, what would I do then?

Well without trying to sound too sarcastic, I'd think long and hard as you are unlikely to get a mortgage.

What people seem to want to do is be able to walk into a bank and say they earn £50k and get a mortgage based on that. Why is it so much to ask that the bank sees some accounts?

You need to be employed for six months before a mortgage will be considered and if you had a temp job for a year would not be considered at all. I don't see the difference.

The problem people seem to have is not being able to self certify. THey want to be able to tell HMRC that they earn £4k a year in their accounts, but *wink* *wink* Mr Bank Manager I actually earn £30k as a taxi driver so lets use that figure instead.

If you start out as self employed, you don't get paid sick leave, you couldn't get redundancy insurance, etc. The bank is reliant on you to tell them how much you think you will earn.

Surely on an affordability basis, a lender should be looking at your accounts.

You cannot have the best of both worlds, I am in employment and can fully vouch my salary with payslips and get a mortgage. At the same time I cannot actually tell the taxman I only earn £5k and take the rest in cash and pay no tax at all, I don't pay reduced NICs.

Its not a permanent ban on self employed ever getting a mortgage, they just want to see you make a go of it first

R

foreversummer

jockosjungle wrote: »

You cannot have the best of both worlds, I am in employment and can fully vouch my salary with payslips and get a mortgage.

R

But you could be called into your bosses office tomorrow morning and told they are laying you off. So how does that make you a safer bet than someone who has the ability and skill to go it alone, build up their own business and generate their own income?

coldstreamalways

jockosjungle wrote: »

Well without trying to sound too sarcastic, I'd think long and hard as you are unlikely to get a mortgage.

What people seem to want to do is be able to walk into a bank and say they earn £50k and get a mortgage based on that. Why is it so much to ask that the bank sees some accounts?

You need to be employed for six months before a mortgage will be considered and if you had a temp job for a year would not be considered at all. I don't see the difference.

The problem people seem to have is not being able to self certify. THey want to be able to tell HMRC that they earn £4k a year in their accounts, but *wink* *wink* Mr Bank Manager I actually earn £30k as a taxi driver so lets use that figure instead.

If you start out as self employed, you don't get paid sick leave, you couldn't get redundancy insurance, etc. The bank is reliant on you to tell them how much you think you will earn.

Surely on an affordability basis, a lender should be looking at your accounts.

You cannot have the best of both worlds, I am in employment and can fully vouch my salary with payslips and get a mortgage. At the same time I cannot actually tell the taxman I only earn £5k and take the rest in cash and pay no tax at all, I don't pay reduced NICs.

Its not a permanent ban on self employed ever getting a mortgage, they just want to see you make a go of it first

R

Thank you for your input, I am aware of the issues with self employment.

I want to leave the Army as I have begun to not enjoy continually getting sent to places I don't want to be and the amount of time I spend away from my family. As a dentist, the only real option is for me to be self employed, there are salaried jobs but not in the sector I want to work in. That is a decision I am making for my own reasons and I don't need to be patronised by someone who assumes I think being self employed is a walk in the park and insinuates that everyone who is self employed wants to fleece the taxman.

So, it is impossible to get a mortgage if you only have one year of accounts to show? Would this apply for remortgages aswell?

beecher2

coldstreamalways wrote: »

So, it is impossible to get a mortgage if you only have one year of accounts to show? Would this apply for remortgages aswell?

Yes, but you'd be able to stay with your current lender as long as you weren't asking for more money.

coldstreamalways

beecher2 wrote: »

Yes, but you'd be able to stay with your current lender as long as you weren't asking for more money.

That is exactly the situation I will be in I feel. Thank you.

jockosjungle

foreversummer wrote: »

But you could be called into your bosses office tomorrow morning and told they are laying you off. So how does that make you a safer bet than someone who has the ability and skill to go it alone, build up their own business and generate their own income?

OK and how is your average mortgage underwriter going to assess your general level of skill, determination and ability to build up your own business?

I know many self employed people in my life, people wanting to have their own business, opening a cafe, turning their hobby into their job, etc. None of the businesses have been done on sound financial planning and have basically limped along and then folded (after they've ploughed all their savings into keeping it going).

I know there are plenty of people who are self employed and doing very well, maybe going self employed and improving their income (coldstreamalways for example). However anyone can declare themselves self employed and set up any business they like - i believe the government actively encourages this. You don't have to have a good idea, you don't have to have any skills.

Do you honestly think it a good idea that I can set myself up tomorrow as "Jockosjungle's Super Awesome Company" and self certify myself an income of £100k and get a mortgage?

coldstreamalways - I imagine as a dentist you could prove a decent income stream in some other way than just your EOY SA accounts. This guidance is new so may not be a blanket ban on all SE people, there'll always be exceptions

R

foreversummer

jockosjungle wrote: »

OK and how is your average mortgage underwriter going to assess your general level of skill, determination and ability to build up your own business?
R

And after he has looked at your payslips, is he going to assess the boss/company you are working for and look at the financial stability of the company to see if he is going to be in a position to continue to employ you?

jockosjungle wrote: »

Do you honestly think it a good idea that I can set myself up tomorrow as "Jockosjungle's Super Awesome Company" and self certify myself an income of £100k and get a mortgage?
R

No of course not. I am not arguing the case for self-cert mortgages. Just sensible treatment of the self-employed based on affordability (a thorough assessment of current incomings and outgoings via bank statements) and credit rating, and not a return to the days when self-employed people had to go to specialist companies who charged high rates of interest just because they were self-employed.

There needs to be discretion by the lenders. A blanket ban on anything is very rarely a good idea.

Foreversummer

brook2jack

Hi coldstream,

when we moved mortgages I had to provide three years of accounts,bank statements and tax demands to satisfy new lender.

Moving mortgages with same lender havent had to provide proof.

Have to say as an associate the banks aren't anymore sympathetic to dentists than anyone else, and as you will probably be a performer ,not a provider ,if you're NHS then the contract isn't even in your name so you will have nothing other than your BDA contract to show income.

Conrad

coldstreamalways wrote: »

So, it is impossible to get a mortgage if you only have one year of accounts to show? Would this apply for remortgages aswell?

Trust me, as a self emplyed person you most certainly will want your Accountant to reduce your Tax bill, and the ONLY way to so do is to declare less profit - ie less personal income.

The banks will lend on this profit after expenses. Typically this profit is far lower than the true personal income enjoyed.

A Bank cannot 'guess' what your true income is of course, they have to use what is in the accounts.

In your case as a dentist there are lenders that can consider 1 years accounts.
In your 1st year though there will be massive establishment costs typically, and they have the effect of minimising profit, so again youre back to square one.

The only LEGAL answer is to declare a high profit and pay a large amount of Tax (like employed people as a proportion of income).

A cabby cannot just claim to earn £30k really - imagine if he got into arrears and the regulator got involved - they would find a Bank leant on the verbal assurance of the cabby as to what he earned - in this letigious society the cabby would then sue for misselling just as loads do on this very forum.

Conrad

foreversummer wrote: »

There needs to be discretion by the lenders. A blanket ban on anything is very rarely a good idea.

Foreversummer

But descresion later leads to applicants sueing for miselling - THAT is the problem.

When people later get into arrears, trust ne, they forget all about how grateful they were for the loan, and they claim the loan was made based on assumptions and adhoc judgements rather than his 'real tax returns'.