Help! Please with self employed mortgage

Bristol-Lady_2

Hi, I wonder if you can help please.
My other half has been to an IFA to enquire about a new mortgage which we now have in principal. The IFA used his last years income (1 year only) to offer us a mortgage for a purchase price of £280,000, deposit of £60,000 for £1690.00 per month. This is at 5.07%. Does anyone else think this is high? I am a mortgage newbie
TIA

kingstreet

Are you saying he only has a one year trading history, or that you are having to use his latest year's figures because previous years' weren't good enough?

HappyMJ

Bristol-Lady wrote: »

Hi, I wonder if you can help please.
My other half has been to an IFA to enquire about a new mortgage which we now have in principal. The IFA used his last years income (1 year only) to offer us a mortgage for a purchase price of £280,000, deposit of £60,000 for £1690.00 per month. This is at 5.07%. Does anyone else think this is high? I am a mortgage newbie
TIA

To me yes it's high.

If I bought this place at that rate of interest it would cost me more in interest than I'm paying in rent so renting is the cheaper option.

How much to rent the same property each month?

It would be easy to find a property worth £280,000 and pay much less than £1,690 per month renting it. Don't forget you also can earn interest on your £60,000 (£150 per month) whilst waiting for a better offer on a mortgage so waiting another year should be much cheaper in the long term than buying now and having to remortgage in a year or two.

Bristol-Lady_2

They said he only needed 1 year. The last year was quite good at £56,000 the previous 2 years he had a dip, but this years (July end) should be around £55,000.

HappyMJ

Bristol-Lady wrote: »

They said he only needed 1 year. The last year was quite good at £56,000 the previous 2 years he had a dip, but this years (July end) should be around £55,000.

That's 50% of his take home pay (after and and NI) being committed to a mortgage. That's quite high.

kingstreet

If you want a mortgage based on one year's figures because you have been trading for only one year, there are lenders for that.

If you want a mortgage based on latest year's figures because previous years weren't as good and you want to avoid averaging, there are lenders for that.

If you now want to introduce a projection for the next year into the equation, that is going to mean potentially different lender options again.

Please tell us;-

is the affordability/lending being based totally on his 2014/2015 net profit/director salary and dividends, his 2015/2016 net profit/director's salary and dividends or one of these plus a projection?

which lender

sole trader, partnership or limited company and year-end?

Bristol-Lady_2

He's a sole trader (builder) and the mortgage is based totally on last years net profit 2014/15 - no projection for 2015/16 was asked for even tho it will be a good year for him similar to last year.

kingstreet

I can't think of a lender I would put this to and get a rate of 5.07%.

It's not tight on income, unless you are a non-working joint applicant and you have a few kids and credit commitments?

What else is in the make-up of this case?

Bristol-Lady_2

They have told me not to be involved with the mortgage just my other half as I do have kids and debts, so its just for him.

Verix

I would reflect what others have said in that unless there are some factors we are missing (such as adverse credit) then I can't see why you should be looking at interest rates that high.

amnblog

The other broker has seen the whole case and there may be something that we are not aware of.

Having said that, assuming affordability and credit history fits, I would be looking to place a case like this on a rate closer to 2% than 5%.