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Complete confusion over property ladder - help! (self employed)

(29 Posts)
SpecialSnowflake Tue 10-May-16 12:46:41

Please could someone help me understand how this works? We've spoken to a couple of mortgage advisors and are even more confused than before! Apologies if I'm being dim, but I'm rather number blind and am finding this very difficult to understand.

Basic situation:

We own a house we bought 5 years ago for C£230k, which is likely to sell (v quickly, desirable) for C£320k. Mortgaged for £200k.
When we bought we were both employees, earning C£25K each, to a household total of £50K (ish) pa.
Now I'm a SAHM, and DH is self employed earning approx £60k pa, so our household income has in fact risen.

We want to buy a house for about £350k, which needs serious work doing to it so want to borrow an extra £50k (so DH says, but we could prob do just the bare essentials for less and live in DIY hell for a few years).

To move our mortgage over to the new property the mortgage co say we need a deposit of minimum 5% (= £17,500 to borrow £332500), and due to the change of employment it would be treated as a new application, but they'll accept two years of proof of income (via accountants certificate).
They won't lend any more than the value of the house.

Other mortgage advisors have said that as DH is self employed he would need to provide them with contracts proving current work, but his work can be on a rolling weekly basis or for a month, or even daily - so this won't work.

We don't have enough savings to cover the deposit, just enough for the conveyancing etc.

So how do we do it? Does everyone have £15-30k saved up before they move, or does the deposit go up the chain once our house has sold?

My theory is we sell our £230k house for £320k, making £90k 'profit".
Pay 5% deposit of £17.5k, leaving £72.5k 'profit'.
Borrow a further £132500 (?) on top of existing mortgage, making a total of £332500 borrowed, to new house value of £350k.
Purchase house for goal of £350k inc deposit
Then use the £72.5k to do the works required to make it liveable, ideally this would come in under 40k.

The purchase price may well be more than £350k, these are just guesstimates at the moment (house being sold is vacant and we currently have 'first refusal').

Does that work, or even make sense? confused
Any replies appreciated. flowers

SpecialSnowflake Tue 10-May-16 12:53:46

Goal = total

Who knows if we can even get a mortgage on an income of 60k.... Aargh.

EarSlaps Tue 10-May-16 12:59:20

Can't comment re your figures (barely slept last night so my brain isn't working!) but we didn't have the money spare for stamp duty etc when we bought so added it to the mortgage.

We sold with equity of £220k and bought with equity of £190k so we could cover stamp duty, removal costs, legal fees, estate agents fees, a bit of work needed on moving in etc.

We had looked into buying a different house that we would have extended straight away and the mortgage company were happy to lend enough for that as we had a good level of equity and passed affordability tests.

Just a note- household income of £25k each is probably going to bring in more than one salary of £60k due to tax free allowances, higher rate tax etc. Obviously costs of working ( eg clothes, commute, childcare) will change what this does to your overall family budget.

SpecialSnowflake Tue 10-May-16 13:07:35

Thank you EarSlaps !

Sunnyshores Tue 10-May-16 13:49:15

Your £90k equity = potential deposit and yes it goes up the chain as the deposit.

You say the house is £350,000, maybe more?
You want to borrow £332,500 (against £350k) = loan to value LTV of 95% which is pretty high for most lenders. You def wont be able to borrow more than this.

I have no idea about you meeting lenders affordability as it doesnt depend on what you earn as much as what outgoings you have. But as you admit you havent been able to save anything it would suggest you are spending all you earn already. SO maybe they wont lend you 30% more.

Being self employed also limits the mortgages open to you , I dont know why they want to see his contracts - our broker wanted to see 3 years of accounts.

We used London and County brokers, they were brilliant - no fee, all done over the phone and we got an excellent mortgage with no fuss from the Coventry in the end . It may be worth a call to them if you're struggling to get a straight answer.

SpecialSnowflake Tue 10-May-16 14:56:44

Thank you Sunnyshores!
Considering the equity we may well be able to up the deposit to 10-15%, I guess depending on our sale price.

It's just finding a new mortgage that might be tricky now as our circs have changed so much.
We're both directors of DH's Ltd company, so there are dividends etc as well as income.
Everyone we talk to seems to have a different take on it, so it's helpful having it spelled out for me - thank you!

WitchTyler Tue 10-May-16 15:19:53

But your equity isn't £90k if you sell for £320k, it's £120k. Equity is the difference between the amount you sell for and the amount you owe, so 320 - 200. The amount you originally paid isn't relevant.
So assuming you can cover costs (including stamp duty), you will only need to borrow £280k to give yourselves the £50k needed for the work.

SpecialSnowflake Tue 10-May-16 15:41:26

Doh! Of course you're right WitchTyler! Like I said - not good with numbers! blush
That will allow us a much bigger deposit and hopefully make it more feasible.
Thank you!!

SpecialSnowflake Tue 10-May-16 16:00:19

Have just been discussing this with DH and we finally have got the hang of it!
He thinks about numbers very differently than I do, and neither of us are good with them so it's our worst possible discussion.
We've mapped it out on the chalkboard and it makes much more sense now.
A mortgage of £280k is hopefully much more achievable.

Now we just need to get costings for all the work required and figure out how much we really need to budget!

titchy Tue 10-May-16 16:16:07

I think you'll have a problem getting a £280k mortgage with £60k self employed income tbh. Lenders are far stricter than they used to be. £200k may be possible.

Maybe polish up your diy skills!

Sunnyshores Tue 10-May-16 17:32:49

On top of buying this house you will need legal fees, stamp duty, searches, surveys etc so another £10k.

There 2 main questions to get answered before you go any further:

1. what a lender will lend you - and add this to the £120k equity that you have (assuming you sell for £320k)

2. how much per month that is and whether you can afford it now and in a few years when the mortgage rates have gone up.

You will need a broker to tell you this.

There is no point you getting your hopes up, and the vendors, and getting quotes for the work needed until you know you can buy it. Because tbh it sounds £100k out of reach (purchase price, mortgage or work needed).

CantSleepWontSleep Wed 11-May-16 00:05:49

If you sell for £320k, even with an agent taking only 1% commission, you will have £3,840 to pay (because VAT is payable on commission).

If you buy for £350k, you will have £7.5k of stamp duty to pay.

You'll then have conveyancing, removal costs, and surveys, which is likely to set you back another £3k-£6k.

So that's about £15k 'cost to move', which you'd need to fund from your sale proceeds.

Selling at £320k, paying off your current mortgage and covering the move costs just described means that you'll be left with £105k.

Without keeping any cash back, that would mean a mortgage of £245k just to buy the new house. To keep £50k back for works on the house means that you'd need to borrow £295k.

I think you'd stand a cat in hell's chance of this on a £60k self employed gross income I'm afraid.

At 4% interest rate, a £295k mortgage over 25 years (assuming your dh is under 40 - if older you'd need to do over a shorter time period) would cost you just over £1500 a month. So that's nearly £19k per year just for the mortgage.
It sounds like you're set up in a slightly more tax efficient way, but on a standard PAYE basis a £60k gross income would net £42k per year. This would mean that 45% of your net income went on the mortgage. That's not a position that I'd want to be in, especially if interest rates rose!

Sorry to be down on your dreams, but numbers are my thing!

SpecialSnowflake Wed 11-May-16 00:35:51

CantSleep that's much appreciated thank you, as you may have noticed numbers are really NOT my thing!

It's looking less and less likely isn't it.
DH is 42. We're both fairly handy DIY-wise but the house would need new wiring and poss plumbing which is not in our skillset, so realistically we'd need a big chunk to pay tradesmen for these and other things.
We had a meeting with a mortgage advisor a month or so ago that was very encouraging, but I fear he was actually shit and giving us unsustainable scenarios.
The business is set up well and I admit I don't fully understand the financial arrangements, our accountant is v efficient.
Ugh. Reality bites. I think this house may be pie in the sky.

Sunnyshores Wed 11-May-16 09:19:33

Snowflake will prob be set up as a ltd company with her and DH as directors taking mostly dividends. It is far more tax efficient than PAYE but there are new Dividend rules as of next FY, havent worked them out yet, but guess what? it means more tax to be paid!!

Phone a big broker like London and County and get an answer once and for all. You do need a competent broker. They will give you figures you can work with for next time you find a house you love.

SpecialSnowflake Wed 11-May-16 09:45:37

Yes Sunny we're a Ltd co.
Tbh if we don't get this house we'll have to consider moving area, 90% of buyers are newcomers from London so local buyers are totally shafted price-wise. Good for our sale as ours is an ideal pretty starter home (just too damn small for us with two DC) but as buyers we just can't compete.
I'm hoping to retrain so perhaps in five years time will have a reasonable income to add to the pot.
In the meantime we may have to Bonsai the children and KonMari the entire house! and DH had better have that vasectomy as we can't fit a 3rd child in here

kirinm Wed 11-May-16 10:55:32

We have been accepted for a mortgage of £320k with a combined income of £75k and my DP is self employed. Natwest are lending 4.5 x combined salary. If it wasn't for my student loans we'd actually be offered £350k

kirinm Wed 11-May-16 10:56:09

Sorry, that is with a 20% deposit so not sure if that makes a difference.

SpecialSnowflake Wed 11-May-16 11:16:20

Thank you kirinm I'll add NatWest to the list of phone calls! Much appreciated.

kirinm Wed 11-May-16 11:23:24

It's actually Natwest Intermediary Solutions. I would highly recommend going through a broker. Oh and it's 4.75 not 4.5 x salary.

Sunnyshores Wed 11-May-16 12:23:08

Seriously snowflake you cant do this yourself. You wont be given a staight answer and each person you phone will want all your details - and more- or to send you into a branch, in a months time , or to rearrange a callback, which never comes, go to one decent broker and let them search for a deal for you.

Ive been through this very recently, it really isnt simple or quick.

SpecialSnowflake Wed 11-May-16 12:36:41

It's the finding the decent broker part that's the stumbling block - the guy we saw recently was not good, and the people DH spoke to yesterday weren't helpful either!
Waiting for a call back from a freelance friend's good broker.

Definitely don't want to do it all myself, don't worry!

Sunnyshores Wed 11-May-16 12:52:39

www.landc.co.uk

They're free and have won loads of awards, recommended by Martins moneysavingexpert (Im not on commision, dont work for them etc etc)

CantSleepWontSleep Wed 11-May-16 22:42:03

kirinm - do you have children yet? I ask only because I'm genuinely suprised at 4.75 x combined income, but if they have looked at affordability and you have no money sapping dependents then it might at least make a bit more sense.

kirinm Wed 11-May-16 22:46:57

I have a grown up child who moved out last year so no dependents (I had him young although I'm now quite old). I think natwest are possibly one of the only lenders who lend at such high multiples but our mortgage payments will be £600 a month LESS than our rent so it is significantly cheaper for us to buy.

kirinm Wed 11-May-16 22:51:26

Just did a quick Google and apparently they aren't the only lender offering 4.75 x combined income. Does it sound really unusual to you?

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