Getting a mortgage when self employed

[realmaverick]

Despite having savings and a great bank account, where they're willing to throw money at me, apparently its a different ball game with mortgages.

I want to buy my dads house for him, as part of a right to buy. We'd both be on the mortgage as he couldn't afford it himself or even get the mortgage by himself.

I figured it would be a piece of cake, there's 60% equity in the property already after his discount. I rang the bank and they told me that unfortunately my bank history doesn't matter when it comes to a mortgage, WTF? Instead they need 3 years worth of proof of earnings AFTER tax. I have a good accountant!

If I worked in a shop, earning minimum wage, I'd need 1 pay slip apparently and that would be it!

Now I'm worried I might not get the mortgage. Or am I worrying about nothing? How much would I need to earn, to get a mortgage on a £38,000, with a house value of £100,000?

Any advice would be wonderful.

 

[Lease4Less]

There is a member on here called tony84 who should be able to help you with this, either drop him a PM, or have a search on the threads.

 

[ethical PR]

Apart from the moral question about buying heavily discounted council properties and taking them out of the social housing market, at a time where there our hundreds of thousands on council waiting lists, I think what they are looking for is three years accounts. If you can show them income whether from dividends or through PAYE that more than covers the mortgage repayments, you should be okay. Check with an independent broker, they should be able to advise.

 

[realmaverick]

Apart from the moral question about buying heavily discounted council properties and taking them out of the social housing market, at a time where there our hundreds of thousands on council waiting lists, I think what they are looking for is three years accounts. If you can show them income whether from dividends or through PAYE that more than covers the mortgage repayments, you should be okay. Check with an independent broker, they should be able to advise.

I don't believe there is a moral question. My dad has worked all his life and paid rent on the property, paying for the house many times over. He is now earning a low wage and with bedroom tax, he's living on the breadline and fearful of losing his home, sure he might get rehoused but this is his home and if I can legally protect him, I will. I want to give him security, thats all.

I appreciate you were not being shitty, I just wanted to make my opinion on the matter clear.

There is a member on here called tony84 who should be able to help you with this, either drop him a PM, or have a search on the threads.

Thank you, both

 

[qul]

the justification I normally hear is that the local authority should have already generated a significant return on the property and selling it will release funds to invest in other properties.

 

[tony84]

I think for you to be on the mortgage you would also need to be on the rental agreement with the council - its a bit late to check now but im sure most lenders insist on that.

You havnt actually said anything about your personal circumstances so its impossible to say whether it can be done or not, some lenders will look at you with 1-2 years accounts but under Right to buy those options will be limited (i would be leaning more towards 2 years).

A bank cant lend you money with a few months bank statements as you could be fiddling those figures - it happened a lot pre credit crunch. They want to see you can consistently deliver those figures. Being employed is different because they assume the company employing you is covering its costs etc. Also a lot of lenders insist on you being employed for 3-6 months.... none of that helps this scenario, i just wanted to give you some understanding as to why things differ for employed/self employed.

How many years accounts do you have? What do those show as profit/wages etc? Assuming you are looking at about £12.5k plus for the last 2 years then i would say there will be options. At 1 year it would be a bit difficult.

Look at this another way, right to buy you are using a given discount as the deposit - there is no money being put in. So that shows no history of being able to save... another big risk lenders are looking at more and more.

I would speak to a broker as there is a chance this can be done but no where near enough info to say yes or no for definite.

 

[AndrewEardley]

From my time as a mortgage adviser (and it was about 4 years ago) it was a requirement of the RTB scheme that the mortgage had to be in the same name as the tenancy agreement. The council's were also hesitant to add another name just so that it could be purchased under the scheme

If they were to add you on to the tenancy; they usually started it again, meaning you no longer qualified for the RTB discount

 

[kevin.doran]

Saw this thread, was going to suggest Tony but can now see he's already here!

Not read it but whatever he's saying, I'd highly suggest listening - chap knows his stuff!!

 

[arcon5]

I don't believe there is a moral question. My dad has worked all his life and paid rent on the property, paying for the house many times over.
)

So have millions of other renters in the private sector - whom not only generally pay a higher rent (rather than the heavily discounted rate the council charge, so don't get me started on people moaning about having a reduction in housing benefit aka bedroom tax which isn't actually a tax) but also don't get the liberty of the LL offering them the property at significantly below market value.

This right to buy might have been a fantastic scheme had successive governments did their job properly and planned ahead by building new homes - but now we're in a position where families are living in b&b' and wherever else they can be placed because of this shortage in social housing.

So yes, there absolutely is a moral question of it all. But personally I can understand why you'd want to do it and would probably do the same in your situation. So please don't take this as a personal attack on you personally - its an attack on the failure of our governments allowing this to happen.
Although I appreciate this may be going a little off topic now, oops

 

[AndrewEardley]

So have millions of other renters in the private sector - whom not only generally pay a higher rent (rather than the heavily discounted rate the council charge, so don't get me started on people moaning about having a reduction in housing benefit aka bedroom tax which isn't actually a tax) but also don't get the liberty of the LL offering them the property at significantly below market value.

From my memory of the RTB scheme (and as I said its been a few years since I looked at it; any tenant had the right to apply to purchase a property they had lived in for a number of years (more than 5 I think) by issuing a s128 notice (I think it was called that)

The LL then has to give due consideration before declining it.

I am not detracting from the issue you raise as it is a valid one; however private tenants do have the right to extend the RTB scheme to cover them!

 

[kihughes]

I've also just completed a mortgage having the same issue. I owned 2 properties outright and earn a good amount each year but have high outgoings.

The problem with being self employed is that they check our net income rather than the usual persons gross income.

They will give you 3x your income minus outgoings (not after tax). Whatever you've earnt the past 3yrs added together and shared by 3.

So if I've earnt £30,000 just like an employed person but spent £10,000 on things for my job like travel. The employed person can get £90k but I can only get £60k. It's so wrong.

Most companies will now insist you have at least £25,000 earnings between all mortgagees.

 

[tony84]

They will give you 3x your income minus outgoings (not after tax).

Most companies will now insist you have at least £25,000 earnings between all mortgagees.

This isnt quite true, some lenders do up to 5.5x income (although only in rare circumstances). I tend to work to the tune of 4x income as that is achievable with the majority of lenders.

The £25k income comment is not correct. Some BTL lenders insist on an income of £25k but not all. For residential mortgages there is not normally a minimum as far as income goes - although there are usually minimum loan amounts, so your income would need to fit in with those. I often do mortgages for people on a combined income of less than £25k.

 

[kihughes]

With the 50 top lenders we tried through the statements I made were factual.

 

[tony84]

I dont want to get into an argument, but i find it hard to believe that you tried 50 lenders (i dont think i could name that many!) and they all said 3x income and that they had minimum income requirements of £25k.

http://www.halifax-intermediaries.c...ortgage_affordability_calculator/default.aspx - put an income in of £20k, it comes back with £97k lending... thats nearly 5x income... it also comes back with a result despite being below £25k.

http://www.woolwichintermediaries.co.uk/Residentialcriteria/IP1242620533007 (Click on the letter I - income multiples)
- Maximum standard income multiple 5.5
(although this does reduce under certain circumstances - typically higher LTV).
- They also have no minimum income requirements.

These are 2 of the biggest lenders on the high street. I could dig out countless others if needed.

I dont want to get into an argument but i do get paid to do this day in day out its my job to know lenders criteria. I also know that some lenders displayed criteria is a guide at best and can be bent in certain circumstances.

 

[chalkie99]

So if I've earnt £30,000 just like an employed person but spent £10,000 on things for my job like travel. The employed person can get £90k but I can only get £60k. It's so wrong.

If you've "earned" £30,000 but spent £10,000 on things for your job then you haven't earned £30,000. Stop confusing turnover with profit.

 

[kihughes]

Tony we can all google the fancy offers they show on their websites but the ones they're actually giving out are very different. We did indeed try 50 lenders and actually managed to get ours through Halifax.

 

[tony84]

The fancy offers?
They do not advertise something they do not offer! Lenders can afford to cherry pick who they want in the current climate so why would they lie? They then have to administer all of those applications which is a waste of time and money. The Financial Services is a regulated industry, they're not allowed to lie or be misleading.

I am a Mortgage Advisor, i have real live clients where i have obtained 4x income for many many people with god knows how many lenders. In fact i dont know ANY lender who limits their lending to 3x income (although it is all now based on affordability rather than income multiples).

I did try to be polite with my original post, but your post is wrong.

 

[Scalloway]

If you've "earned" £30,000 but spent £10,000 on things for your job then you haven't earned £30,000. Stop confusing turnover with profit.

If you are self employed you can claim expenses against tax that you can't when you are an employee.

 

[arcon5]

The 'fancy offers' though are probably not available to a typical mortgage customer. More than likely just there to entice and actually only offered to highly liquid asset rich individuals whereas the average working person will never get on it

 

[kihughes]

The 'fancy offers' though are probably not available to a typical mortgage customer. More than likely just there to entice and actually only offered to highly liquid asset rich individuals whereas the average working person will never get on it

Exactly. Those fancy offers aren't available to Joe Bloggs self employed.

 

[tony84]

Whether you are employed or self employed your still entitled to the same deals. You just have to pass the credit and affordability checks in the same way as an employed person.

There are no conspiracy theories.

 

[arcon5]

Whether you are employed or self employed your still entitled to the same deals. You just have to pass the credit and affordability checks in the same way as an employed person.

There are no conspiracy theories.

Really?
We're talking about the same banks right? The banks whom have been slated time and again for misselling and misleading people.

 

[tony84]

OK, banks are bad. They have a minimum income requirement of £25k and only lend you 3x income. If your self employed... forget it.

That must mean what i do only a daily basis is even more special.

Im not getting into a debate about PPI - if you want to do that, then it might be better to start a new thread.

There are no conspiracy theories, banks WANT to lend money. I sat with 2 account managers last week from 2 different banks both telling me they need to increase their lending... they earn money from lending it out. They do not earn money from trying to sell something you cant get - thats a waste of your time and theirs (or mine as a broker and if i found they were doing that time and time again - have a guess who i would avoid using).

 

[Backrubber]

Maybe someone has already covered this - if so, I apologize.

Am I correct in saying that if you put down a large enough deposit on a property (eg 40%), you do not have to provide any evidence (accounts, etc) regarding your income?

The logic being that if you default on the mortgage, the bank will repossess it and providing the value hasn't fallen by more than 40% (ie your deposit), they won't lose any money.

Example:

Cost of house = £100,000
Deposit = £40,000

You then default on mortgage and the bank takes the house back.

The banks sells the house for £80,000.

The bank makes a profit of £20,000 because they lent you £60,000.

 

[arcon5]

I highly doubt that would be the case these days. Wouldn't be surprised if it was something they'd do back in the days of them playing roulette with the economy

 

[tony84]

Maybe someone has already covered this - if so, I apologize.

Am I correct in saying that if you put down a large enough deposit on a property (eg 40%), you do not have to provide any evidence (accounts, etc) regarding your income?

No, those times have well and truly gone.

All lenders have to be responsible lenders. That means (among other things) they have to ensure you can make the repayments. They can no longer just accept your word for it - which is understandable as that system was abused.