Self employed mortgage help!

ARE007 · 6 September 2017 at 8:50PM

I'm currently self employed (sole trader) and I have a complete set of accounts for the last 3 years, however my income has been falling and only begun stabilising in the last 4 months. Obviously this stabilisation won't show until I do my 2017/18 tax return next year.

Anyway, I'm currently looking to buy my first property so went to get some mortgage advise last week and the advisor spotted this decline in my income and rightfully raised concern about it. She informed me that lenders typically do not lend on falling incomes, therefore my 2016/17 tax return (which I haven't filed yet) would need to show an income of the same or higher level than the previous tax year.

Since then I've been trying to work the figures for 16/17 (playing around with expenses etc) but I'm finding it impossible to make up the difference (approx. 2/3k) without declaring more money to HMRC than I've actually earnt. Very occasionally I get paid in cash and PayPal and it's possible I've miss recorded it, however I have no proof of this income via bank statements.

Bit of a nightmare scenario and I'm just looking for some advice as I would hate to lose out on a mortgage because of a few grand.

glosoli · 6 September 2017 at 8:52PM

There are some lenders who would lend on the most recent years figures if it is a decreasing trend. What are the figures like and how much are you looking to borrow?

Fiesto88 · 6 September 2017 at 9:45PM

Many lenders will still lend on a reducing income, but they'll typically use the most recent year.

What is the reason for the decline? Is it a drop in turnover, an increase in operating costs or both? If it's one or the other, lenders may be prepared to consider the circumstances. For example, if turnover has been relatively consistent but profit has decreased due to buying new equipment or taking on additional staff, if the mortgage is affordable on the most recent years profit figure, it may suffice. What the underwriter would be concerned with is whether the figure they're using - the most recent - is reasonably likely to be sustainable. It would help to provide items such as invoices/contracts/business bank statements - anything that they can look at that would counter balance the appearance that your business is in decline.

amnblog · 7 September 2017 at 7:00AM

Wires crossed here.

Lenders do lend on decreasing profit but understandably it does give them some concerns.

They typically average 2 or 3 years profit, but if profit is declining they may work on the recent year only. If 2016/2017 has declined they may ask for projections for 2017/2018 to be confident it is not a continuing trend.

If there is a reason for the decline that we do not expect to be repeated (for example bad debt written off, or an investment to produce future growth) this can help support an application.

Go back to your Broker.

The golden rule is do not submit tax returns based on what you think will get you a mortgage.

Self employed mortgage help!

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