Asset Rich, Cash Rich, but still no mortgage

joepubli

A friend has recently become self employed for the second time in his life. Has a very good track record over 30 years but it seems suddenly that he has become unmortgageable.

Has a property with a 60% LTV with an offset mortgage with First Direct where the initial rate has now expired. Called to switch to a lower rate - they are happy to switch to another offset rate (which is not as good as a repayment rate) but not to a repayment one as that's a "different product" and he wouldn't qualify without employment income or 3 years' accounts. It doesn't matter how much cash or investments he has.

Sounds crazy?

roonaldo

it doesnt matter, if its their policy to have 3 years accounts its just that. this will evidence he has sufficient income to support the mortgage repayments.

its sounds as if he wouldnt have an issue if in regular employment

_Andy_

"Sounds crazy?" No.

ACG

So they tie him into a repayment mortgage. His business doesnt do as expected and he starts to go into arrears and then a complaint is made along the lines of "why did you allow me to go on repayment when i wasnt earning enough".

Thrugelmir

Asset Rich, Cash Rich, but still no mortgage

Pay off the mortgage perhaps?

joepubli

ACG wrote: »

So they tie him into a repayment mortgage. His business doesnt do as expected and he starts to go into arrears and then a complaint is made along the lines of "why did you allow me to go on repayment when i wasnt earning enough".

He is "earning" more than enough - the only difference is that its not employment income but investment income and there is a large safety margin even at current low rates.

joepubli

Thrugelmir wrote: »

Pay off the mortgage perhaps?

In a way that's what he is trying to do by moving from Offset (which is interest only) to repayment - which is with capital.

holly_hobby

This is because if he switches to repayment, his IO mge is closed down and a new mortgage account for the repayment mortgage opened. As this is effectively classed as new borrowing, the lender must demonstrate affordability was assessed during the uw process.

Investment income (other than that as a professional landlord with supporting SA302s/accounts), is not acceptable in place of earned income.

This is what it is, he won't obtain a mortgage anywhere on investment income (notwithstanding landlord revenue as discussed above) - so his options are rather limited.

If he is cash rich, but has no earned income to satisfy current lending criteria, why not leave on IO, and just make lump sum reductions as and when he can, which if he is out of product/choses one with no early repayment charges, will remain penatly free, no matter what those payments amount to.

Simple .. no ?

Hope this helps

Holly