Mortgages & Self Employment

pmartin86

Hi there

I know this is a while off yet, but my partner and I have started saving for a house despoit. We've been looking online at calculators etc to try and get a vague idea of what's a reasonable price range to aim for and how much deposit to aim for to get a good rate etc, however we keep finding problems with her being self employed, I was wondering if anyone knew how the banks looked upon this? I have a fixed Salary of 16,000 a year (not great I know, but it keeps food on the table) and she turns over aproxx £32k a year with aroun £18,000 profit, business now in its 4th year and well established. I was wondering if anyone would be able to give a vague idea of how much we could borrow and how the banks would look at her earnings, also, any way of increasing her status with the bank oover the next 1-2 years before we actualy apply?

Regards
Paul

JimmyTheWig

What has your partner declared as her income to HMRC for the last few years? £18k each year for three or more years?
In which case I _think_ you can use a standard mortgage calculator with your two incomes to see what lenders will lend.

pmartin86

No unfortunatly not, the first year the business only made around £4000 profit, sencd year was around £16,000 and 3rd year was £18,000, on target to hit £18-£20k this year, shes just about his full capacity now so expecting any more is unlikly unless she expands to new premesis.

Paul

kingstreet

Lenders use net profit as the income allowable for a mortgage. They will normally use the last three years' figures, with the final year figure taken for the multiplier if the three years show steady increases.

Conrad

As you say buying a place is a while off, now is the time to be talking to your Accountants in order to prepare for a mortgage. Done properly you should be in a position to obtain the right mortgage.

JimmyTheWig

pmartin86 wrote: »

the first year the business only made around £4000 profit, sencd year was around £16,000 and 3rd year was £18,000, on target to hit £18-£20k this year

kingstreet wrote: »

Lenders use net profit as the income allowable for a mortgage. They will normally use the last three years' figures, with the final year figure taken for the multiplier if the three years show steady increases.

From this, then, you should be fine to use these figures once the current year's accounts are done. Presumably this will happen before you are ready to apply for a mortgage?

pmartin86

Thanks for the replies all, and thanks for the clarification about the most recent years profits assuming a steady increase is recorded. As i stated, its a hwile off yet, but its nice to get a ballpark figure of what we might be able to aspire too! I suspect its going to take around 18-24 months to get a suitably sized deposit anyway so plenty of time to work out the finer points!

Conrad - Excuse my igorance, but why would speaking to an accountant now help? I assume dthat that sort of thing would only be usefull closer to the time? For now we're just focused on clearing all outstanding debt and will be piling every spare penny into savings.

Regards
Paul

JimmyTheWig

pmartin86 wrote: »

Conrad - Excuse my igorance, but why would speaking to an accountant now help? I assume dthat that sort of thing would only be usefull closer to the time? For now we're just focused on clearing all outstanding debt and will be piling every spare penny into savings.

I think the implication is that the figures could be massaged in some way.
I.e. until now the point of the accounts has been to show HMRC that the self-employment has been making as little profit as possible so that minimal taxes are paid. Now the point is to show that the self-employment is making as much profit as possible so that a decent mortgage will be offered.