FT Buyer - Self Cert or Regular?

freddiegold

Hi,

This is my first post after many hours of lurking.

I'll cut to the chase. I am a FTB and I have had an offer accepted on a house for £200k. I have a deposit of £50k sitting in my personal account, and could add a bit more perhaps. I have another £20k in my company account but would prefer to have some cash flow, so will probably just use the £50k. I am looking to sort a mortgage out on Monday hopefully, but need some advice.

I own my own company and don't pay myself a regular salary. I just transfer money from my business account to my personal account when I need money. My company has two years of accounts (running Feb 1st to Jan 31st) but they don't show too much profit, particularly the first year. This years accounts which will be from Feb to 31st Jan 09, and should show a nice healthy profit. I calculate that if I were to pay myself a regular salary then I would be earning around £35-£40k, possibly more.

I would like to know if this means I will be unable to get a regular mortgage or will have to go self cert, and therefore pay a higher rate? Because although I say I earn £35-£40k I can't show it as a salary as it's in my company account.

If it means I have to go self cert, then should I get a deal which I can get out of easier (such as a tracker) and then start paying myself a good salary, and then switch to another deal going the more traditional route? i.e. in a years time or so?

Any advice appreciated.

Freddie

minimike2

As far as paying yourself etc, you need advice from an accountant.

As far as the mortgage goes, it all depends on your net profits, but from the sounds of it you may need a self cert - just make sure that you declare the income as what you actually pay yourself.

What are the net proft figures on the last two years?

freddiegold

Thanks for your quick reply.

For the first account ending 31st Jan 2007, net profit was just £10k.
For the last account ending 31st Jan 2008, net profit was just £25k.

So far this year things have been better. I've spent less and turnover is much higher, so I would expect a net profit of at least £45k - £55k for 31st Jan 2009.

I know I can afford repayments, and I have a 25% deposit. But I fear that they will laugh at the accounts. If I have to go self cert then I'll be paying a higher %, and whilst I can afford it, the less time I have to overspend the better. So I welcome suggestions on what to do.

minimike2

£70k is about what you would be able to borrow mainstream.

Can you not wait until you have your next set of accounts?

freddiegold

No, I don't want to wait any longer. I really want this house.

I guess I'll just have to go the self cert route. In which case, for my situation do you think a tracker mortgage is best at the moment? Surely I should be not be getting locked into anything if I'm going to pay a higher rate. Then I 'should' be able to change early next year.

BrokeRage

minimike2 wrote: »

£70k is about what you would be able to borrow mainstream.

Can you not wait until you have your next set of accounts?

Sorry Minimike, but Halifax would probably lend 150k based on 45k declared income and will fast-track if your credit score is good (not require proof of income). Your accountant should be able to provide a projection if they decide to ask for evidence.

Pay a broker to do this...it may be that a direct deal is best, but get the broker to sort it. I may be accused of being a bit cavalier here, but I am suggesting using the lower of the projections quoted.

minimike2

I wasnt basing it on £45k declared income becuase he doesnt have the proof for it, I was basing it on the average of the two years net profits for which he has proof for, which is the correct way of assesing the income. I dont "do" fast track in place of self cert. You might but thats up to you, but frankly is abuse of the system which honestly could see such systems withdrawn in future, given the current climate. The number of lenders accepting projections is fast decreasing. And what if the account dont end up showing £45k. I quite honestly think you are being irresponsible in suggesting it.

If the OP wants a mortgage based on the possibiliy the accounts will be £45k then it needs to be self-cert. At least then if he were to claim for bad advice it would be properly covered off the reason why the income was declared as such in the suitability letter. Which of course it would and could not be if the case was done fast track. The FSA would have a field day!

BrokeRage

I know what you are saying, but he is satisfied that he will reach that income and that his figures will back that up this year. I know that some lenders have redefined fast-track, partly through regulatory pressure, but this sounds like a case where the applicant's income is increasing rapidly and he knows where he stands financially. The Halifax ask what self-employed income level is to be used and I think that this guy has got proof via his banking. He might even argue the case through full-status with his income growing at the rate he says it is. There are only a couple of lenders who will lend if he declares the level of income that he has been paying himself up to now and their rates will be approaching 8%. What he is referring to is what his drawings are, but that has no relation to his net profits, which is what lenders use when calculating what they will lend. The self-employed can draw a lot less or a lot more than their net profit if they have the reserves or the overdaft to do so, but that has nothing to do with what they can borrow or on the level of tax that they pay.

We all have our own views, of course, but there are still mainstream lenders who will allow some extrapolation of income (had a couple recently). As I said, I might be taking a bit of a cavalier approach to this one, but, unless the job has seasonal variations, he has had four months to go on this year already and can probably see the upward curve in activity last year.

freddiegold

Thanks for your replies.

Even though the accounts ending 31st Jan 08 showed a net profit of just 25k, the last 4-6 months of that years accounts showed a very positive upturn, compared with the first 6 months. This trend has continued and I feel it will grow even more by the end of the year.

I actually phoned HSBC today to talk with them. I told them what I have said on here. They said that I would need to show I am earning £29.5k for the £150k I need. I told the lady from HSBC everything and she said that the more things I can bring in to the bank, such as bank statements and a forecast from my accountant then the more chance I have of being accepted. It was quite positive.

I would have no problem paying £1k a month mortgage, and this has been the case for many months now. I did some figures yesterday and I have around £39k in credit, with debts (corp tax, projected VAT, etc) of around £12k. So that is £27k in addition to the £50k deposit I have. So I have a nice buffer of around £27k should (unlikely) business take a dip.

I am going to see a family friend who does mortgages tomorrow. He got me an agreedment in principal from a lender a month of so ago for £178k (more than I need), but it was at a higher rate. So I will see what he can do tomorrow. If I have to pay a higher rate until Feb 09, then so be it. I'd rather not though.