Mortgage options for a freelancer

PennywiseCat

Hi,
I'm looking at a mortgage for the first time, i'm 29 and lived with my partner for 7 years until recently. Although I paid half of everything the mortgage was in her name so this is the first time i've had a mortgage myself.

I'm a freelance software developer with a limited company, i've been trading since March this year and my average income is £3,000 per month. I have an accountant but wont have my first years accounts until March 2008. Obviously my accounts will show a basic income of around £5,000 and the rest as dividends.

Prior to my current company I had another limited company, I have 3 years accounts from this, my income was circa £25,000 but again £5,000 salary and the rest dividends. This company is still trading however I have been slowly winding it down and it has no current income at the moment. Early next year I plan to close the company at companies house.
My credit history isn't great, i've had no cards or finance on anything for the last two years, prior to that I had some late payments on credit cards, never more than one month.
More recently Halifax bank registered a default of £300 on my credit file, this was in retaliation for reclaiming bank charges. Do mortgage lenders/brokers look at the circumstances of defaults, or do they just see a default as a default?

The property I want to buy was originally built as a flat next to my parents house. It needs some renovation, I wanted to borrow £50,000, £25,000 to purchase it and the same to renovate it. We estimate its current value to be between £50,000 and £75,000.
So what are my options? How much will that default affect me?

Any help appreciated, am a better going to see a broker considering my slightly unusual circumstances?
Thanks

BilboBaggins_3

Wouldn't have thought it would cause a problem. Ive had no problems in getting a mortgage and Im a freelancer. Didn't even have to prove income or show accounts.

luckyfool

A decent broker is the way to go, unless you have a very good relationship with your current bank in which case they might look at it.

Are you buying the property below its current market value? i.e. Is it worth 50-75k right now, but your parents will sell it to you for £25k? Do you have any cash that you could actually put down as a deposit?

No lender is going to lend you more than the official purchase price, so best case scenario is that they would require you to put the full purchase price through as at least £50k, and you would have to rely on your parents giving you the £25k back to refurb it as a gift after the fact. In all likelihood lenders in this scenario would probably want at least 10% to be going down as a physical deposit from you up front, e.g. 50k purchase price, £45k mortgage amount and a £5k deposit.

You will also have issues raising the mortgage finance if the flat is not currently inhabitable. If it's just a bit run down but is otherwise ok then it shouldnt be a problem, if it needs gutting and is a total state then it would be more of a semi commercial development finance proposition and you would be looking at bigger deposits being required and higher rates being charged.

PennywiseCat

Hi Luckyfool, thanks for the reply.

Your right we think its value is anywhere between £50k and £75k but we've agreed on £25k to buy it. A £5k deposit would be no problem, I might be able to raise a little more at a push.

It would be no problem to do like you say and officially buy it at £50k.

I might have a problem with your last point, I could live in it short term as it is now, theres gas and electricity and its partly furnished, the main issues would be no kitchen and no bathroom, although there is a smalll toilet.

I've got an appointment with a local broker on saturday morning. They are going to try and get me a decision in principle. What happens after this, would the lender arrange for a valuation? If that checks out then would they go ahead?

Thanks

luckyfool

pennywisecat,

The lack of a kitchen and bathroom is likely to be an issue. Residential mortgage lenders will want the property to be inhabitable, and two key criteria for that are that there must be a kitchen and bathroom.

Cheers

Luckyfool