Can't find a lender

M_e

Hi all


I'm a first time buyer who currently rents. I rent a very small 2 bed semi bungalow for £900 a month. I needed 2 bedrooms as I run my accountancy business from home and the second bedroom is used as an office. The bungalow is valued at £250,000 (despite having no front or back garden and parking for only 1 car...) so there is no way I can afford to buy this property.


So I'm going to have to buy a studio flat in a block (I will have to run my business from my parents’ house). I have found a studio flat for £100,000 but I am having trouble finding a lender.


The reason I am having trouble is I have very specific requirements:


1. I'm Self Employed and only have 1 years Accounts worth mentioning (I have traded for over 3 years)


2. I need a lender who will preferably lend minimum 4x Profit


3. I need a lender who will lend to buy a studio flat


4. I need a 90% LTV


5. As competitive rates as possible


I think the repayments will be about £450 a month, so half my Rent (£900 a month). As my Rent is high I am unable to save for a deposit, so I have a very low interest loan (not in my name to avoid a reduction in the amount I can borrow) which I am using as a deposit (approximately £10,000). The interest on this loan is less than £600 over 10 years...


Most lenders have told me I cannot afford a mortgage (even when looking at some very rundown studio flats for £80,000). Apparently I cannot afford £370 a month repayments despite currently paying £900 a month in rent for the past 3 years (over £30,000 spent in Rent).


I did find a lender who would lend based on 1 years accounts but they have told me that they don't lend for studios (even studios converted into 1 bedroom flats) as apparently studios are almost impossible to sell if I default (despite estate agents telling me local studios are very sought after and I've seen a dozen studios pass hands in my area in the past month. This lender only lends 3.6x profit so they weren't ideal but I was willing to do whatever it took to get on the ladder. Unfortunately the cheapest 1 bedroom flat that was never originally a studio flat is about £130,000. Based on 3.6x profit I would need to be earning £32,500 per annum and have a deposit of £13,000 (I have neither).


The reason I only have 1 years' accounts worth mentioning (year ended 5 April 2014) is because I have taken over my ex-boss' business (he retired). I worked for him for almost 9 years (from the age of 17) and he promised to let me take over from him. I set my Accountancy practice up 4 years ago but only took over from him in April 2013. Another thing to note is that as my business is run from home I claim a large portion of my Rent as a business expense (thus reducing my profit). Once I move into a flat my monthly outgoings will decrease substantially (as I will be paying £450 a month less) and my profit will increase (as I won’t be able to claim the mortgage as a business expense). I am unfortunately in a catch 22 situation where my profit won’t increase until I get a mortgage but I can't get a mortgage until my profit increases. It's the same for the deposit, I can't save for a deposit until I own a home but can't own a home until I've saved for a deposit.


So does anyone know a lender that will lend at least 3.6x profit, based on 1 years SA302 (with other years available as proof of SE), to buy a studio flat and is reasonably competitive (the last part might have to be ignored). It's also a single mortgage.


Cheers


M_e

ACG

Speak to a broker. This will be a tough ask, I can only think of 1 lender off the top of my head who it may fit with - but the studio flat could be the stumbling block, it would need to be run by the underwriters first.

Can you not rent somewhere for less and save up a deposit?

M_e

ACG wrote: »

Speak to a broker. This will be a tough ask, I can only think of 1 lender off the top of my head who it may fit with - but the studio flat could be the stumbling block, it would need to be run by the underwriters first.

Can you not rent somewhere for less and save up a deposit?

I already have the £10,000 deposit. Do you mean save more of a deposit?

Funny_old_game

Hard facts like what you have are only what lenders are interested in.

The fact you have approached 1 yr taxable self emp lenders and they have turfed it leaves you with heart to no finance available.

ACG

Bigger deposit means less borrowing which means a lower income multiple and might open up more lenders and lower LTV = less risk for a lender.

M_e

ACG wrote: »

Bigger deposit means less borrowing which means a lower income multiple and might open up more lenders and lower LTV = less risk for a lender.

Yes sorry when you said "save up a deposit" I wasn't sure if you meant borrow more or you'd missed the part where I said I already had a 10% deposit.


A studio flat is about £500 a month to rent. So I could save £400 a month towards a bigger deposit. However I won't be able to rent through an agency as they require previous accounts. As I am an Accountant and do my own accounts, I have found it very difficult to rent through an agency. I could rent a studio privately (if one came available). Of course I'd have to move the business to my parents’ house (which I did intend to do anyway). But I think they were willing to help out as I intended to buy a flat, not rent. So I'd have to see about that.

M_e

Funny_old_game wrote: »

Hard facts like what you have are only what lenders are interested in.

The fact you have approached 1 yr taxable self emp lenders and they have turfed it leaves you with heart to no finance available.

I've only found 1 lender who will lend based on 1 years SA302. The only reason they are saying no is because they don't lend to buy Studio Flats (or 1 Bed Flats converted from studios).

ACG

Who was the lender?

Caladan

You may be able to find a lender, but in the spirit of bluntness often found on the MSE boards I'll make the following observations (please don't let this dishearten you too much, but imagine you are the lender and look at the facts from their side).

The basics -
High LTV (90%) = High risk
Only 1 years accounts = High risk

The above immediately reduces your borrowing power - Asking for 4 times income (whatever you're basing your income figure on, for self employed people this varies from lender to lender).

As to the fact your rent is currently higher than the Mortgage payments, this is entirely irrelevant. In fact, the effects of the recent Mortgage Market Review (MMR) rules will make it even harder as lenders need to go through everything with a fine tooth comb. The actual impact of this is yet to be seen as it only came into place this week, although I have already seen an increase in declined Mortgage applications.

Also note that the 'saving' in your monthly payments is somewhat mitigated by the added costs of home ownership. Insurances, maintenance, ad-hoc incidentals and so on. Trust me, you wont actually be £450 better off. Even if you were, losing your income when renting is one thing (you can move in with the parents, sleep rough or whatever) but losing your income with a property is a massive headache for both you and the lender.

The biggest red flag though, is that you don't actually have a deposit at all. What you have is a lender putting up £10k of the purchase price and you are asking another lender to put up the rest, leaving almost all of the risk with the lenders and very little of it with you. I don't know many lenders if any that would accept funds from a loan as the deposit. I also shows no track record of you being able to save and therefore prepare for the unknown.

It sounds harsh, but I think you're over-stretching yourself by aiming to buy right now. Let your business build up over a couple of years, take stock of what you can afford on a steady self employed income, show a track record of being able to save for yourself and think about it again then.

There are plenty people more experienced than me here (particularly the Mortgage Advisors/Brokers) who may disagree with me in which case I cede the point to their better judgment, but that's my take on it.

Edit: Sorry I miss-read the bit about the loan being in your name. The lender would require some form of guarantee that it is NOT money being loaned to you with an obligation to repay. Since you're making repayments this wouldn't be the case. If you told the lender you didn't have to repay it when you actually did then you're breaching your own obligations to both the lender and your creditor (company or private individual) which opens a whole new can of worms.

TheCyclingProgrammer

I think you're going to find that most lenders wont accept your deposit as it's a loan, regardless of it not being in your name. Whomever has borrowed that loan has now loaned it to you or you wouldn't have it.

CKhalvashi

M_e wrote: »

Yes sorry when you said "save up a deposit" I wasn't sure if you meant borrow more or you'd missed the part where I said I already had a 10% deposit.


A studio flat is about £500 a month to rent. So I could save £400 a month towards a bigger deposit. However I won't be able to rent through an agency as they require previous accounts. As I am an Accountant and do my own accounts, I have found it very difficult to rent through an agency. I could rent a studio privately (if one came available). Of course I'd have to move the business to my parents’ house (which I did intend to do anyway). But I think they were willing to help out as I intended to buy a flat, not rent. So I'd have to see about that.

Offer a years rent plus deposit, and you will be able to let through an agency.

I dealt with a BR situation where this was offered, so there should be no issue there.

CK