Income & Affordability - Help for the self employed please!

Fortune82

I hope someone might be able to help me with the situation my family is in.

After having a couple of children later on in life, the need to move from our albeit comfortable 3-bed semi to something larger is becoming quite pressing. For the type of house and location we're after the price will be in the region of £450,000.

We'd be looking to put up 66% of the value (£300,000) from the sale of the two properties we own and would be looking for facility of £150,000.

Here's the rub. My current lender operates and 'income-based only' approach to lending and they've turned me down for any further advance on our modest £50,000 mortgage. I can understand that to the extent that I started my own company 18 months ago, which is into profit albeit a small one now. However, they won't take account of the net profit projections of £90,000 for 2012 and £80,000 for 2013, even if I don't get any more work! let alone the other £250,000 we have in shares, bonds and cash.

Naturally I don't want to park all our assets and cash into bricks and mortar so a mortgage is a necessity. I don't even mind paying a little bit of a premium rate for the nominal additional 'risk' we pose. Can anyone point me in the direction of a lender that might take into account 100% rather than 5% of our circumstances?

Thanks in advance.

CLAPTON

what's natural about not wanting to use your cash etc to buy the house?

Fortune82

CLAPTON wrote: »

what's natural about not wanting to use your cash etc to buy the house?

I have a great aversion to tying it all up in an illiquid single asset.

Ideally I'd have an offset mortgage as I do now, that minimises the interest I pay but crucially gives me access to cash when I need it.

catieeb06

With 1 year's accounts- can an accountant project to year two or are those figures based on your own presumptions?

Fortune82

catieeb06 wrote: »

With 1 year's accounts- can an accountant project to year two or are those figures based on your own presumptions?

I've made conservative projections for the next two financial years based on contracts already awarded. I will bring in that net income to the company regardless of whether I pick up any further work in the next 18-24 months. I haven't included any projections for work in progress or new client signings.

catieeb06

Realistically you need an accountant to project income to your year end date.The lender won't take into account a projection to 2013 because there are so many variables between now and then.

Try Leeds Building Society if you truly need income multiples and 18 months confirmed accounts.

Fortune82

catieeb06 wrote: »

Realistically you need an accountant to project income to your year end date.The lender won't take into account a projection to 2013 because there are so many variables between now and then.

Try Leeds Building Society if you truly need income multiples and 18 months confirmed accounts.

I'm not sure why I need to pay my accountant any more to do a simple cashflow that I'm more than capable of doing myself. My beef is more about lenders *only* being concerned about income. For goodness sake, income is but one element of affordability, is it not?

Nice tip on Leeds though thank-you.

GMS

Income pays the mortgage, simple as that. Lenders cannot lend without affordability being proven.

catieeb06

Well the lender will only take it from a qualified accountant. In the lenders eyes, and I am not saying you will do this, but you could in essence increase your figures to suit the mortgage application.

Sadly due to past instances of people doing self cert mortgages and over stretching themselves in terms of monthly payments, lenders have to impose some way of measuring income against outgoings and determining affordability.

Fortune82

GMS wrote: »

Income pays the mortgage, simple as that. Lenders cannot lend without affordability being proven.

OK. Let me get this right then.

12 years ago, armed with a 5% deposit I took out £76,950 against a joint income of about £35,000 - with no other assets.

12 years later I want to put 66% equity into a house, have other assets well in excess of the mortgage advance I'm after, no unsecured debt whatsoever, and contracts in place to secure substantial net profits over the next two years and I can't borrow as little as £150,000?

Doesn't the lender have enough security on the 66% equity I'll be putting into the house? Or am I missing something?

HappyMJ

There are lenders around who will lend based on the income generated from the £250,000 of investments and your profit projections based on confirmed contracts.

I would if I were you....you have a company right...I would employ yourself on a fixed salary that would satisfy the lending requirements of the bank, i.e you pay yourself a salary of £1,000 per week and pay tax on it, print payslips and send the money from the business bank account to your personal bank account. Normally you would pay yourself the minimum amount possible and pay yourself dividends to save on tax but banks don't always like to take dividends into account but they take salary into account more.

You might need to think creatively. Sell the company to a family member (not partner) or friend for a pound and be employed by the company which is now no longer closely connected to you so no need to show full accounts. You would then be the manager of the company but no longer a director (on paper). In reality very little changes you still manage and direct the company but your family member or friend just signs off the accounts. It costs a lot more in tax and NI but it gets around your dilemma.