Self-employed mortgage woes

madeleine42

Hi all! My partner and I have recently started the process of applying for a mortgage with Bank of Scotland. I am fully self-employed and my partner is part self-employed, but his main income is his salary as a Company Director.

Initially, after giving our combined incomes for the past two years, we were given a potential mortgage amount of £87500. Since providing our tax returns and P60s, the broker now says that my partner's employed income doesn't count, only his (much smaller) self-employed income does, and will now only offer us a mortgage of £35000!

Is this correct? I don't see why his PAYE income would not be counted?

Any advice would be most appreciated!

haras_nosirrah

Self employed income for ltd is either salary + dividends or salary + retained profits.

I don't see why his PAYE income wouldn't be counted either and I have been a broker for 12 years

madeleine42

Really appreciate you confirming that! I thought it sounded very odd!

I'll see if I can tease out of him why he's discounting it, but honestly I think we may just switch lenders at this point as he just doesn't seem very clued in...

MortgageMamma

Perhaps your broker is inexperienced. BOS policy is that they will accept the income as net profits or dividends plus salary if a LTD Company. As a sole trader its net profits. If the sole trader has another job this can be keyed as such and further PAYE work is calculated at 100% of earned income for affordability purposes.

I'm not saying they are the right lender for you, there maybe something about your circumstances that means that the figure the broker is giving you is correct. For example, are you using any state benefits to boost your affordability? this can be an issue. Perhaps your broker missed the fact that they take an average of the last two years earnings when he did the affordability calculator, rather than just the latest year.

It is possible to do a mortgage with BOS on just one years accounts. This method can be used if there is a good enough reason if you've been trading longer than 1 year but it would have to be backed up with a letter from your accountants saying what they anticipate your earnings will be this year.

MM

madeleine42

Thanks for this MortgageMamma!

He does seem to be taking both the figures for 2017 and 2018, but only the self-employed figures, which are tiny, as my partner took a salary as director for those two years, with just a couple of payments coming to him as a sole trader.

We don't have any state benefits so it's not that... and we don't have any loans, dependants or credit cards either.

Just very strange! We've asked him to call our accountant to hopefully get to the bottom of it, but in the meantime I'm just racking my brain trying to understand his logic, so your help is very much appreciated!

If it helps, here are our exact income figures and where they came from:

2017

My partner:
Self-employed earnings: £3035
PAYE earnings: £5940
TOTAL: £8975

Me:
Self-employed earnings: £8722

2018

My partner:
Self-employed earnings: -£712
PAYE earnings: £8160
TOTAL: £7448

Me:
Self-employed earnings: £11733

If there are any issues you can see, please let me know! Obviously our wages are small (starving artists!) but we are only looking for a £50K mortgage, and have a sizeable deposit of £45K.

Or if you know of a better lender/ type of mortgage to go for, I'd appreciate that too!

MortgageMamma

madeleine42 wrote: »

Thanks for this MortgageMamma!

He does seem to be taking both the figures for 2017 and 2018, but only the self-employed figures, which are tiny, as my partner took a salary as director for those two years, with just a couple of payments coming to him as a sole trader.

We don't have any state benefits so it's not that... and we don't have any loans, dependants or credit cards either.

Just very strange! We've asked him to call our accountant to hopefully get to the bottom of it, but in the meantime I'm just racking my brain trying to understand his logic, so your help is very much appreciated!

If it helps, here are our exact income figures and where they came from:

2017

My partner:
Self-employed earnings: £3035
PAYE earnings: £5940
TOTAL: £8975

Me:
Self-employed earnings: £8722

2018

My partner:
Self-employed earnings: -£712
PAYE earnings: £8160
TOTAL: £7448

Me:
Self-employed earnings: £11733

If there are any issues you can see, please let me know! Obviously our wages are small (starving artists!) but we are only looking for a £50K mortgage, and have a sizeable deposit of £45K.

Or if you know of a better lender/ type of mortgage to go for, I'd appreciate that too!

I will do an affordability calculation for you and confirm what it says

MortgageMamma

Just to confirm do you have any children or adult dependants? what is the property valued at?

madeleine42

Thanks so much! No, we have no children or adult dependants, and the property is valued at £105K but we have had an offer accepted at £94K. Also we are in Scotland, if that makes a difference!

MortgageMamma

Hello

Based on your earnings calculated as follows

Yourself both years earnings divided by 2 = 10227.50
Partner Self employed earnings divided by 2 = 1873.50
Partner PAYE earnings THIS year only = 8160

Total income used £20,261

The affordability calculator is throwing out £80,110

If you would like me to send you the affordability calculation I will happily email it to you. I appreciate you are in Scotland but affordability models are done on a UK wide basis so your location won't make much difference.

madeleine42

Okay, that's great, thanks for doing that! So, it seems, in principal, we should be fine and it's just this particular adviser's mistake. I do think it is just a lack of experience as he is very young.

Is there a particular lender or type of mortgage you'd recommend given our circumstances?

Really appreciate you letting me pick your brain! This is all very new to us

MortgageMamma

madeleine42 wrote: »

Okay, that's great, thanks for doing that! So, it seems, in principal, we should be fine and it's just this particular adviser's mistake. I do think it is just a lack of experience as he is very young.

Is there a particular lender or type of mortgage you'd recommend given our circumstances?

Really appreciate you letting me pick your brain! This is all very new to us

I think you will be OK with Halifax/Bank of Scotland to be honest, they are very good with self employed applicants.

I think its the way the adviser has presented the case to them. I think he's either misinterpreting their criteria or he is struggling with their online system (its not the best) to key a second occupation. Or maybe he just didn't record your circumstances properly. Either way, your case is fairly straightforward so I think you should look at BOS again, use a different adviser or go direct - however if you go direct you do not benefit from professional advice (not that you've had much of that from the sounds of it!) the bank can only offer you information on its products.