Transfer of Title - Self Employed - NatWest

itiswhatitisnt88

Hello, 

Don’t know if anyone can give me any advice or reassurance… I am in the process of doing a transfer of title as my ex husband has moved out of our home. I completed my application on 14th July with my current lender NatWest for the existing mortgage and an extra £20k to buy my ex husband out. 

I got a call to say the underwriter isn’t happy to take my income from my small business as income as we recorded a loss of 6k on our accounts last year… I have since sent supporting documentation to show why the loss was recorded and we have had a more profitable year this year but accounts have not been prepared or filed yet (YE 31st August) but I have given them this years figures and the business banking is RBS so they can physically go in to the account to see an increase in turnover of 60%. 

I haven’t heard back from them yet and just wondered if anyone had experience with this? I’m anxious if I get declined my ex will make me sell the house. I have two small children. LTV is around 64% and I have a perfect credit history but was very tight on the affordability but made the amount needed (just).

Thanks I’m advance 

MWT

How did the previous two years profit look and is the forecast for the current year profit (not just turnover) higher than the years preceding the loss?

itiswhatitisnt88

MWT said:

How did the previous two years profit look and is the forecast for the current year profit (not just turnover) higher than the years preceding the loss?

Thank you for your reply! Previous two years were both affected by covid as we had to close our shop - they only asked for two years of accounts so the ones I have submitted show a net profit of £17k 20/21 and loss of £6k 21/22 ironically we didn’t trade throughout 20/21 due to covid so we had no outgoings it was our poorest year in terms of turnover the £17k is only there as we received an insurance payout for being closed due to covid…

I detailed all of this along with projections for this year and next but haven’t heard anything back from them yet…

itiswhatitisnt88

itiswhatitisnt88 said:

MWT said:

How did the previous two years profit look and is the forecast for the current year profit (not just turnover) higher than the years preceding the loss?

Thank you for your reply! Previous two years were both affected by covid as we had to close our shop - they only asked for two years of accounts so the ones I have submitted show a net profit of £17k 20/21 and loss of £6k 21/22 ironically we didn’t trade throughout 20/21 due to covid so we had no outgoings it was our poorest year in terms of turnover the £17k is only there as we received an insurance payout for being closed due to covid…

I detailed all of this along with projections for this year and next but haven’t heard anything back from them yet…

MWT said:

How did the previous two years profit look and is the forecast for the current year profit (not just turnover) higher than the years preceding the loss?

Apologies I didn’t answer this, yes the forecast is £5k net profit for this year

MWT

Sadly I'm not surprised they are not keen to include income from the business...

20/21 £17K due to insurance payout.

21/22 £6k loss

22/23 Estimated £5k profit.

There isn't really enough to show any helpful trajectory...

How much did you need to reach the affordability criteria?

If they accepted the £5k estimate would that be enough?

itiswhatitisnt88

Thanks for your reply I’m really anxious and worried…

I’m not sure what you mean re affordability, sorry, I thought that was my annual income vs how much I can borrow as I pay myself monthly PAYE and have paid myself every month for 6 and a half years. The amount I qualified for was just above the amount I need for the mortgage and £20k buyout. 

The 5k would just stay in the business if that makes sense? It’s a limited company and my sister and I jointly own it and we have two members of staff.

Thanks again for any help or advice you can give me!

CSI_Yorkshire

From your first post, it sounded like you squeaked past the affordability test based on your PAYE income from the business.

The underwriter seems to be saying that this income is not secure enough because the business is not profitable, so they can't be sure that you will continue to have the same amount of PAYE income.

So there are two questions:

1.  How much PAYE income would be ok to pass affordability?
2.  If the underwriter accepted that the business was making £5k annual profit, would this be enough to convince them that you can guarantee the amount of PAYE income from Q1?

itiswhatitisnt88

CSI_Yorkshire said:

From your first post, it sounded like you squeaked past the affordability test based on your PAYE income from the business.

The underwriter seems to be saying that this income is not secure enough because the business is not profitable, so they can't be sure that you will continue to have the same amount of PAYE income.

So there are two questions:

1.  How much PAYE income would be ok to pass affordability?
2.  If the underwriter accepted that the business was making £5k annual profit, would this be enough to convince them that you can guarantee the amount of PAYE income from Q1?

Thank you for responding -
1. They based this on my last two p60s I had to get an exemption as I am just paid my salary so my accountant just does p60s and not tax returns. 
2. Yes the business made about £180k this year enough to pay everything and there is about £20k in the reserves account at the moment…

I sent all of this information to them in a document with projections etc they also have access to my business banking as it is with RBS under the same group so they can verify all my figures.

MWT

itiswhatitisnt88 said:

Thank you for responding -
1. They based this on my last two p60s I had to get an exemption as I am just paid my salary so my accountant just does p60s and not tax returns.

Have you actually submitted any tax returns yourself, or are you just relying on PAYE and no other triggers to prompt the need to file? If not it is worth considering as it does help when it comes to things like mortgages...

itiswhatitisnt88 said:

2. Yes the business made about £180k this year enough to pay everything and there is about £20k in the reserves account at the moment…

When you say 'made' I assume the £180k is your turnover this year? (The £20k in reserves is about cash-flow which is a different question).

If so then they may be concerned that given the volatile profitability, a net margin below 3% (£5k profit), may not be enough to give them confidence that the level of income you are drawing from the business is sustainable...

Whatever evidence you can provide to show that the increase in turnover this year is sustainable and on an increasing upward trajectory would be helpful perhaps? 

itiswhatitisnt88

MWT said:

itiswhatitisnt88 said:

Thank you for responding -
1. They based this on my last two p60s I had to get an exemption as I am just paid my salary so my accountant just does p60s and not tax returns.

Have you actually submitted any tax returns yourself, or are you just relying on PAYE and no other triggers to prompt the need to file? If not it is worth considering as it does help when it comes to things like mortgages...

itiswhatitisnt88 said:

2. Yes the business made about £180k this year enough to pay everything and there is about £20k in the reserves account at the moment…

When you say 'made' I assume the £180k is your turnover this year? (The £20k in reserves is about cash-flow which is a different question).

If so then they may be concerned that given the volatile profitability, a net margin below 3% (£5k profit), may not be enough to give them confidence that the level of income you are drawing from the business is sustainable...

Whatever evidence you can provide to show that the increase in turnover this year is sustainable and on an increasing upward trajectory would be helpful perhaps? 

Yes, so no other triggers to prompt a need to file.

Yes, sorry, so turnover is £180k for the YTD. 

This is so stressful - I feel like if I was just an employee it would be fine but you are so scrutinised as a business owner… what sort of net profit are they looking for? I’ve been drawing the same salary for six and a half years so I hoped that would help but it seems to not make any difference…

I have provided my business plans, projections, background on all the figures and all my sales data but I’m starting to worry that it’ll not make any difference…

Do you think it is worth trying any other lenders if I am declined or will it just be the same outcome? I have emailed a mortgage advisor to see if they could help if this NatWest application falls apart. 

My only other option is to remove myself as a director of the limited company if that is even an option? Or I would need to get a job somewhere but I’m not sure how long I’d have to do that for to have the evidence they need 3/6 months? I’d also need to be at the shop too so would be working 2 jobs potentially. I don’t mind working hard and I work long hours but it would be hard.

Thanks for your help, I’ve not been eating or sleeping since I got that call on Friday and I’m scared and worried that I’ll have to sell my house and what I would do. I’ve been living here on my own for 2 and half years now and trying to run my business. I have two little boys (one with autism who has challenging behaviour) and I feel very lost and anxious so it’s nice to have some guidance… apologies for the sob story!

CSI_Yorkshire

You've been drawing the salary from a business that has been making a loss.  That does not give a bank confidence you can keep drawing that salary for the next 20 years to pay the mortgage.  That's what they are thinking about.

If the new paperwork is enough to give them the confidence, it will be fine.