Self employed mortgage ratios

[Four Cofffee]

I have been out of the mortage thing for a while (luckily) but occasionally my mind turns to moving. I wondered how the self employed fare in the current climate and how much they would currently lend me?

When we took out the mortgage in 2003 we borrowed about 1.5 times what we were taking from the fledgling business in wages and dividends. My acountant and the mortgage adviser at my bank (who had arranged a number of mortgages for me over the years) managed to convince the bank after a struggle that £60K PA taken in dividends between the 2 of us was worth more than 2 x £30K gross in a normal PAYE job and that we had 3 years of signed contracts. Even though we paid off the mortage in 2005 after a few good business years I have kept the mortgage facility open (it is one of those joint mortage/current accounts) just in case I needed the money again but obviously if I moved I would have to apply for a morgage on the new house.

So, are self certified mortages still available and how would a small businessman with say a 75% deposit and 3 years of accounts showing decent profits fare these days? What ratio of borrowing to earnings now applies, and do they now want years of accounts?

I did think about applying to extend the mortage now, get the agreement and the facility on the account but just not dip into it so that when I came to move they had already agreed a £200K loan which we could effectively just take with us.

[Eric Mc]

As an accountant I have noticed that mortgage lenders are increasingly asking self-employed individuals for three year's accounts and sometimes projections as well. In many ways, they are going back to what they used to always do. Self certification is becoming a lot rarer.

[Four Cofffee]

Eric Mc said:

As an accountant I have noticed that mortgage lenders are increasingly asking self-employed individuals for three year's accounts and sometimes projections as well. In many ways, they are going back to what they used to always do. Self certification is becoming a lot rarer.

Projections! Quite difficult in the current climate.

[scotal]

Four Cofffee said:

So, are self certified mortages still available and how would a small businessman with say a 75% deposit and 3 years of accounts showing decent profits fare these days? What ratio of borrowing to earnings now applies, and do they now want years of accounts?

If you have 3 years of accounts showing decent profits, and you are looking at 25% LTV, you'd have no trouble getting a full status mortgage.
Self cert mortgages are trickier, although at that LTV certainly not impossible. Oh yeah, you won't like true self cert rates much.

Edited by scotal on Wednesday 5th August 09:42

[scotal]

Four Cofffee said:

I did think about applying to extend the mortage now, get the agreement and the facility on the account but just not dip into it so that when I came to move they had already agreed a £200K loan which we could effectively just take with us.

Check for portability on that. (i.e can you move the facility from house to house without too much problem. You might find you have more trouble getting an extension on your current facility harder than a new mortgage. THe bank may, and I stress may take the view that you are borrwoing form your house to fund your business.

[scotal]

Eric Mc said:

As an accountant I have noticed that mortgage lenders are increasingly asking self-employed individuals for three year's accounts and sometimes projections as well. In many ways, they are going back to what they used to always do. Self certification is becoming a lot rarer.

Depends from lender to lender Eric. What has changed is the amount of leeway a lender will give on application. Until recently they were happy to do a lot on a nod and a wink, especially where the self employed were concerned. Now they are mouch more likely to verify incomes.

[Eric Mc]

scotal said:

Eric Mc said:

As an accountant I have noticed that mortgage lenders are increasingly asking self-employed individuals for three year's accounts and sometimes projections as well. In many ways, they are going back to what they used to always do. Self certification is becoming a lot rarer.

Depends from lender to lender Eric. What has changed is the amount of leeway a lender will give on application. Until recently they were happy to do a lot on a nod and a wink, especially where the self employed were concerned. Now they are mouch more likely to verify incomes.

Absolutely.

We woulodn't be in half the mess we are in today if banks had applied the old fashioned checks and balances to their lending criteria that they used to.

[JimCross]

I assume the same checks (e.g, 3 years accounts) apply to contractors working as a single person limited company?
I was thinking of going contracting, but it sounds like that would effectively tie me in to my existing mortgage for another 3 years.

[Eric Mc]

JimCross said:

I assume the same checks (e.g, 3 years accounts) apply to contractors working as a single person limited company?
I was thinking of going contracting, but it sounds like that would effectively tie me in to my existing mortgage for another 3 years.

It should.

Banks (to a varying degree) don't always understand exactly what they are looking at when someone presents a small, one man band limited company set of accounts. They often need to be hand held through what the figures actually mean.

[scotal]

JimCross said:

I assume the same checks (e.g, 3 years accounts) apply to contractors working as a single person limited company?
I was thinking of going contracting, but it sounds like that would effectively tie me in to my existing mortgage for another 3 years.

Not necessarily, it depends on how you are paid, how long the contract it, and how often it has been renewed. If its a 6 month contract that has been rolled on twice then lenders will be happy, if its an open ended contract that may be terminated at any time, and you've only been there acouple of month's then getting finance would be harder. Different lenders approach contracting different ways. The very strictest will look at it as if you are a temp, and therefore don't have secure earnings, the most liberal will look at it as if you are PAYE.
I would suggest you sorted your mortgage prior to going contracting, however that might not work if you are currently tied in, or certainly assumed the market was closed to you for a year or so.

[scotal]

Eric Mc said:

Banks (to a varying degree) don't always understand exactly what they are looking at when someone presents a small, one man band limited company set of accounts. They often need to be hand held through what the figures actually mean.

The most worrying part of that, is that if the lenders don't understand the figures put in front of them they will quite often simply decline the case........

[Eric Mc]

scotal said:

Eric Mc said:

Banks (to a varying degree) don't always understand exactly what they are looking at when someone presents a small, one man band limited company set of accounts. They often need to be hand held through what the figures actually mean.

The most worrying part of that, is that if the lenders don't understand the figures put in front of them they will quite often simply decline the case........

Very true. I've seen that happen.

[JimCross]

Thanks for that, very interesting.

Unfortunately one of the reasons for going contracting would be to increase my earnings to allow me to upsize in 1-2 years time, so securing a larger mortgage before going contracting wouldn't necessarily solve the problem.
I'd hope that having had a mortgage for 4 years with no late payments (and lots of overpayments) might help my cause there, though that would suggest some common sense is used, which seems unlikely.

While I agree it's a shame that lenders decline cases where they don't understand the numbers, at least that's better than them accepting cases where they don't understand the numbers!

Edited by JimCross on Wednesday 5th August 14:22

[Eric Mc]

Even better if they actually employed people with some knowledge and intelligence. It's just as wrong to deny someone who is a perfectly acceptable risk than it is to give a loan to someone who is high risk - especially when the loan has been denied because THE BANK doesn't understand the numbers.

If a bank can't fathom a set of small company accounts - no wonder banks go bust.

Edited by Eric Mc on Wednesday 5th August 14:34

[scotal]

Eric Mc said:

Even better if they actually employed people with some knowledge and intelligence.

And that really is the big problem, especially in mortgages.

[bigandclever]

JimCross said:

Stuff

I've not used them personally, but www.contractormoney.com might be worth having a chat with.

[Four Cofffee]

Eric Mc said:

scotal said:

Eric Mc said:

Banks (to a varying degree) don't always understand exactly what they are looking at when someone presents a small, one man band limited company set of accounts. They often need to be hand held through what the figures actually mean.

The most worrying part of that, is that if the lenders don't understand the figures put in front of them they will quite often simply decline the case........

Very true. I've seen that happen.

When we got the first mortgage after incorporation my accountant met with the mortage adviser and they put a case together for the bank so that the figures were correctly presented. 12 months later the bank closed the branch and the mortage adviser left. Gone was the capacity to make sensible decisions based on people she knew.

[fivesixseven8]

scotal said:

JimCross said:

I assume the same checks (e.g, 3 years accounts) apply to contractors working as a single person limited company?
I was thinking of going contracting, but it sounds like that would effectively tie me in to my existing mortgage for another 3 years.

Not necessarily, it depends on how you are paid, how long the contract it, and how often it has been renewed. If its a 6 month contract that has been rolled on twice then lenders will be happy, if its an open ended contract that may be terminated at any time, and you've only been there acouple of month's then getting finance would be harder. Different lenders approach contracting different ways. The very strictest will look at it as if you are a temp, and therefore don't have secure earnings, the most liberal will look at it as if you are PAYE.
I would suggest you sorted your mortgage prior to going contracting, however that might not work if you are currently tied in, or certainly assumed the market was closed to you for a year or so.

This worries me a little. I'm a one-man-band Ltd co contractor. Been going for 2 years exactly and have only had 3 weeks with no work in that period, good CV, long contracts etc.
We were hoping to buy at the end of this year, but if the 3 yrs of books is a must then I guess I may have problems?

Scotal, IIRC, you work as a mortgage broker? Could you help out or advise at all? Drop me a PM if you can please?

[JimCross]

bigandclever said:

JimCross said:

Stuff

I've not used them personally, but www.contractormoney.com might be worth having a chat with.

Thanks, looks very useful!

[vinnie83]

75% deposit, it's unlikely you'll even be asked to evidence your income - they will most likely fast track it (no proof of income required) and just ask your income.

BTW I'm a mortgage advisor so the above is based on recent applications for clients.