Self Employed but want a new mortgage!!

MrsSollis

My husband and I have currently have a 50% shared ownership property. It was bought 5 years ago based on my income as a teacher, which I no longer have since becoming a mum.

We are now reliant on my husband's self employed income and this is causing issues with getting a mortgage to move to a bigger house. I have a small employed income but only work 3 days a week so this is limited income.

He earns a good steady income (with reliable clients and income sources) and every single job goes through the books, yet because he puts his monthly wage as an outgoing, alongside petrol, which he uses a lot of due to the nature of his work, plus other necessary outgoings, his profits are not as high as mortgage lenders want them to be.

We are finding this upsetting and frustrating, as it can be seen that we always pay all our bills and mortgage on time, we both have perfect credit records and what we take home at the end of the month is above average I am sure.

Can anybody suggest if there are any ways to get around this or if our current situation would be enough to get a mortgage? We feel stuck in a rut, desperate to move to a bigger house so we can expand our family, but not sure of how we can do it. The only thing I can think is that we need to reduce what we put as outgoings.

I look forward to hearing your advice!

AdrianC

Is he "self-employed" (as a sole trader), or does he own a limited company which employs him?

Either way, though, his profit is what the business charges less what the business spends - and of course that includes fuel and the other outgoings. What's left is the profit. If he's a sole trader, that's his income. If there's a limited company, then what he takes out via salary, and (after corp tax) dividends, is his income.

If he doesn't have enough years of accounts to prove that it's a steady income, then he's stuffed.
If the income isn't sufficient to meet affordability criteria, then he's stuffed.
Affordability criteria were looser five years ago - plus, of course, there were two incomes in your household...

So, no, it's not overly surprising that he might not be able to remortgage the property that you're currently paying a mortgage on - because that mortgage was taken out under very different circumstances.

In addition, if you're both owners (whether joint tenants or tenants-in-common), he will find it very difficult to get a mortgage that doesn't have you on it. You don't necessarily have to have an income to be on the mortgage, but you will need to be on it.

MrsSollis

He is a sole trader, it is not a LTD company.

It is so frustrating as we can show we pay a mortgage with no issues at all!

Basically we need our profit to show as much higher to be in with any chance don't we?

AdrianC

MrsSollis wrote: »

He is a sole trader, it is not a LTD company.

It is so frustrating as we can show we pay a mortgage with no issues at all!

Basically we need our profit to show as much higher to be in with any chance don't we?

If he's a sole trader, then the only way to "show the profit higher" is for him to invoice more and/or spend less. Basically, for there to BE more profit, not just make it look like there's more money than there actually is.

There is no difference between his finances and the business finances. He is the business.

densol_2

MrsSollis wrote: »

My husband and I have currently have a 50% shared ownership property. It was bought 5 years ago based on my income as a teacher, which I no longer have since becoming a mum.

We are now reliant on my husband's self employed income and this is causing issues with getting a mortgage to move to a bigger house. I have a small employed income but only work 3 days a week so this is limited income.

He earns a good steady income (with reliable clients and income sources) and every single job goes through the books, yet because he puts his monthly wage as an outgoing, alongside petrol, which he uses a lot of due to the nature of his work, plus other necessary outgoings, his profits are not as high as mortgage lenders want them to be.

We are finding this upsetting and frustrating, as it can be seen that we always pay all our bills and mortgage on time, we both have perfect credit records and what we take home at the end of the month is above average I am sure.

Can anybody suggest if there are any ways to get around this or if our current situation would be enough to get a mortgage? We feel stuck in a rut, desperate to move to a bigger house so we can expand our family, but not sure of how we can do it. The only thing I can think is that we need to reduce what we put as outgoings.

I look forward to hearing your advice!

If he is a sole trader - from the way you describe it, he is doing his books very incorrectly ! Wages paid to oneself is NOT a legitimate business expense.

Its income in - less allowed expenses ( which are not wages ) = net profit. That's what he pays tax and NI on. He can then spend his net profit on what he likes. Its his net profit that banks look at for the end of year accounts.

If you are saying he does this .... Income, less expenses ( which he includes his wages ) = net profit then he is seriously under paying his tax bill and liable to a massive bill in the near future. That would of course be a low figure for mortgage purposes as its incorrect.

[Deleted User]

I think it would be worth a visit to a good accountant to get advice on how best to handle the business accounts.

Or maybe if the self employed option isn't helpful to your aims, maybe you both need to put the teaching on the top burner, and self employment on the back burner.

henrytrinh

So, no, it's not overly surprising that he might not be able to remortgage the property that you're currently paying a mortgage on - because that mortgage was taken out under very different circumstances.

TBagpuss

If he is a sole trader he doesn't take a wage. He takes drawings against profit

He has gross profit (turnover less costs of the business) and net profit (gross profit less tax and NI)

If what he is declaring to lenders is gross profit less drawings then he is effectively saying that his only income is whatever element of profit he leaves invested in the business.

If the business were a limited company then he would have his wages plus additional income from dividends.

Does he have an accountant? If not, hen I sugset that he gets one, to prepare his accounts.

Then speak to a mortgag broker.

depending on which lender you go with, he will normally need to provide either 2 or 3 years worth of accounts. Some will accept an accountant's certificate to confirm income although.

I have been told, but am not sure how accurate it is, that most lenders will look at the average or the 2 (or three) years accounts OR your last full year of accounts,. whichever is lower, and base any offer on that.

So if net profit was £20,000 for 2014-15 and £25,000 in 2015-16 they would use £22,500 as your income.
If it was £25,000 for 2014-15 and £20,000 in 2015-16 they would use £20,000.

glasgowdan

Basically, the profit the lenders are wanting should INCLUDE his drawings.

He needs to re-do his accounts. Also, if he's been putting his accounts through the past few years minus his drawings, then he is going to be in deep trouble with Mr HMRC when he finds out.

MortgageMamma

One crucial bit of information needed here. Who did you approach for your affordability calculations? was it a lender/s direct or did you go through a broker?





The reason I ask is because lenders affordability criteria differs massively from one lender to another. Some lenders for example only require 1 years accounts.




I agree with what others say about redoing the accounts to show the business expenses and drawings separately, which will give a truer reflection of earnings vs whatever profits are kept within the business.

MrsSollis

Thanks for all the comments - lots of very valuable advice!

I am not 100% sure on how it is all done, I don't have anything to do with it ...but it is all done via an accountant so is all above board etc etc. We have now taken advice from the accountant too and things are looking rosier than I initially thought they would be!

Hopefully we will be able to move house sooner rather than later!!

Thank you again.