Self employment and rental income

PG95

Hi. Please help.

I own a house with my brother with no mortgage. We are looking to remortgage this house for my brother to buy another house to live in, but am not sure how much we could borrow. The house is worth about £430,000.

I am employed and have rental income (a different house which I own myself). My brother was self employed for 2 years, and has now formed a limited company (first year accounts will be available next month).

Me: -
Employment income: £24,000 plus small bonus.
Rent: £30,000, Property worth about £850,000, outstanding mortgage of £480,000, buy to let interest only mortgage fixed for another 3 years. Annual Interest is £9,600.

Brother: -
Self Employment last 2 years about £12,000 profit (have SA 302s)
Company: Salary £12,000, expected dividends £10,000

For a residential mortgage, is rental income and dividends included in affordability assessments.

If rental income is included, our combined income would be£ £66,000. If not it would be much lower at £36,000.

My brother is looking for houses at around £350,000, and needs a mortgage of about £250,000 to £300,000. Is this even possible based on these figures. Can anyone please give me a rough guide of what is possible.

I don't expect my income to change any time soon, but my brother is expected to have higher profits in the next year, so higher dividends. If his dividends was £15,000 in the next year, would this make a difference. Is it worth waiting for another year to get a mortgage.

Also while I am here, how do I find a suitable broker. I live in London, does the broker have to be close by or is everything done by phone/email these days.

Thanks in advance.

Lilla_D

Hi there, nowadays a broker can be anywhere, although some people do prefer putting a face to a name. You can search online, but if you ask your friends / family / colleagues, they may be able to recommend you a broker as well.

Re your brother's income - changing from sole trader to Ltd director is ok, especially that he will have his first yr Ltd accounts.

Re rental income - some lenders consider the rental income reported on the SA302, others ask for both the rent and the mortgage payments, costs, and use the net figure, while others just ignore it as long as the rent covers the mortgage. I.e. they won't use £30k gross rent.

Re potential borrowing - £250k-£300k seems a bit too much to ask for. However, the actual figure will depend on your declared rental income, outgoings, credit history, etc. and if the declared rental profit is high enough, you might be able to pull it off (just). Who will pay for the mortgage, if it's in joint names, but you live in the property and your brother lives in another property mortgage free?

Re your BTL property - it's a rather high value property. How did you end up with it? Would you consider selling it and releasing equity from it? Just thinking out loud.

Hope the above helps

PG95

Thank you for the quick reply.

About the rented house. It was inherited from my parents. We decided that we want to keep it for now, so it was rented out in 2015.

Rental profit for the 3 years are:
2015/16: £19,700
2016/17: £13,700 (spent a bit of money on repairs)
2017/18: should be about £20,000
These are all included in my tax returns. My credit history should be spotless. The only loan I ever had was the mortgage on the BTL. I had a credit card before but that was closed sometime last year as I had too many cards.

The plan is for him to buy and live in the new house and he will pay the mortgage. We just thought that the amount borrowed would be higher if it was a joint mortgage on the one we already have.