Business Startup - Remortgage help please

chris_white_3

Hello, I am currently employed and recently took on a 3 year fixed rate mortgage which was evaluated based on my current earnings.

I am about to leave my job in order to setup my own company but my earnings will drop massivley as a result. I am a concerned as I don't know what will happen in 3 years time when my fixed rate ends and I need to remortgage.

My understanding is that I would be judged on business profits but as a startup it will take a long time for profits to increase. What would happen if my business profits are not large enough when being evaluated for the remortgage? Would I be stuck on my current lenders SVR? If so I feel it would be unaffordable and I'd need to sell the house which I don't want to do. Please could you help me and advise me on what my options will be in 3 years time and what I should do now to plan ahead so I can get a good mortgage when my fixed rate ends?

Thank you

harvey115

Hi

Yes every time you remortgage you will be assessed by the lender for affordability and any other lending criteria the lender may have.

In terms of owning a Ltd company. I also own a Ltd company and the problem is that majority of the lenders do not consider companies profit as your money because it is not yours. If you are self employed then the profit is considered to be your earning as total. However the lenders would look at your total earnings in terms of how much you pay yourself such as PAYE + Dividends.

If you have ingoing contracts with your clients and you are able to use these contracts (i.e. 6 months rolling), you may well use these contracts to get a mortgage deal.

CLAPTON

chris_white wrote: »

Hello, I am currently employed and recently took on a 3 year fixed rate mortgage which was evaluated based on my current earnings.

I am about to leave my job in order to setup my own company but my earnings will drop massivley as a result. I am a concerned as I don't know what will happen in 3 years time when my fixed rate ends and I need to remortgage.

My understanding is that I would be judged on business profits but as a startup it will take a long time for profits to increase. What would happen if my business profits are not large enough when being evaluated for the remortgage? Would I be stuck on my current lenders SVR? If so I feel it would be unaffordable and I'd need to sell the house which I don't want to do. Please could you help me and advise me on what my options will be in 3 years time and what I should do now to plan ahead so I can get a good mortgage when my fixed rate ends?

Thank you

why would you start a business where you expect that even after three years you won't even be able to afford your mortgage?


it's likely that in three years, mortgage rates will have increased further adding to your financial burdens

antrobus

chris_white wrote: »

... What would happen if my business profits are not large enough when being evaluated for the remortgage? Would I be stuck on my current lenders SVR? If so I feel it would be unaffordable and I'd need to sell the house which I don't want to do...

If your mortgage would be 'unaffordable' at yout lender's current SVR, then it might well be 'unaffordable' in three years time anyway. Who knows that interest rates will apply in three years time?

I know that's not remotely helpful, but that's the way it is.

chris_white_3

Thank you so much for your responses.

I should clarify that according repayments is not my concern as I am confident we will be able to make repayments even if rates do rise.

My concern is ensuring that I can actually a) secure a mortgage when the renewal comes based on lenders criteria and b) secure the lowest rate
possible rather than settle for the lenders extortionate svr.

Advice on these matters specifically would be most welcomed as I will not continue to work in my current role simply to secure my next mortgage, there has to be an effective solution to this, surely.

How are self-very mortgages these days? That is how I bought my first property in 2003 after 1 year of freelancing.

Thank you very much.

The_J

Self very or self cert? Non existant.

It's very simple, if you don't have the net profit (after expenses, before tax) that will get you a mortgage with a new lender then you are at the mercy of your existing mortgage company. If you have been keeping up the payments that could be a good rate but equally it could be a poor one.

edit: the fact you have a 3yr fix rate is quite good, should give you the opportunity to have 2 years accounts.

chris_white_3

Yes self cert, sorry auto correct problem there.

Thank you for the info...

So far I have been given two slightly conflicting bits of info regarding calculations for lending criteria.

Harvey mentioned it was paye + dividends. Thej mentioned net profit.

It would be very helpful if you could advise me specifically what I will be evaluated on from my business accounts.

I expect to setup a ltd company and will be an employee of that company who can draw a salary and dividends.

Thank you very much, I'd like to start out on the right foot with this in mind so your advice is very useful.

harvey115

Harvey is NO financial advisor, so I think you should go with what others have said.

The_J

We are both right, some lenders look at net profit, some look at salary + dividends. First Direct look at just salary :rotfl:

Thrugelmir

chris_white wrote: »

It would be very helpful if you could advise me specifically what I will be evaluated on from my business accounts.

Whatever form you draw your remuneration shouldn't be your primary concern. Focus needs to be on profitability. Preferably on an upward trend. As a lender quite possibly will average your first 3 years of trading profits.

secure the lowest rate
possible rather than settle for the lenders extortionate svr.

SVR's may well be the benchmark in a few years time. Highly unlikely that heavily discounted rates will ever be seen again. Except for promotional purposes on short term fixes.

chris_white_3

Interesting..... Thank you for your input... Great to understand this better.

Current base rates are very low, my fixed rate is good at 2.79%, still way above base.... My banks current svr is around the 5.5% mark from memory which is way above base.

I'll be pondering this tonight, the more clarity on my situation the better., so please keep the advice coming

Worst case if banks don't want to lend me money in 3yrs despite an incredible track record, I'd just sell up to coincide with end of fixed rate and buy in a cheaper area or country using my equity to go mortgage free or to get past these limiting measures for the self employed.