self employed mortgages - income multiples??

[merrilywego]

I spoke to a mortgage broker today who specialises in finding mortgages for the self employed. I've spoken to him before, and plan on using him for when I'm in the position to apply next spring, following my divorce. He seems pretty credible and knowledgeable.

What I'm puzzled by is his insistence that if you're SE, you can still get 4 times your income, as long as you can prove your figures. Although checks have got tougher, he says this is for everyone, and not just people who work for themselves. He said that income multiples haven't changed much since the mortgage shake up.

Does this match anyone else's experience? I've just assumed I'm going to have real problems getting a mortgage lender to look at me - lowish income, lone parent, and self employed to boot!! Feel like I've got no chance!!

I was told they'd need to see 2 years of accounts.

Yes, I think that's pretty much the case. Plus 3 to 6 months of bank statements for some lenders....

Income multiples are not the be all and end all they once were.

It's all about affordability now- do you have childcare costs etc?

If you have a low income and highish outgoings you will struggle to find a mortgage.

Even 4 times a lowish income won't get you very far with current house prices in many parts of the country.

I'd have a chat with another broker and stick your details in some of the online lenders mortgage calculators to get a better gauge.

The broker will get you a mortgage.
Whether or not you can afford the rate is another matter.
To comply with the new rules lenders need three years of tax return data
without that you'll pay through the nose
self employed mortgages are no longer easy to get

and remember its multiple of the amount on your tax return, not turnover

Thanks Bearbehind. Yes, affordability has become very important, I know. High overheads means a lower lending offer in most cases. What I do have on my side is a very large deposit, which means I can stump up around 65 per cent, and I don't need a massive mortgage but it's still going to be around 3.5 times my annual income. And I'm not an easy 'case', being SE, a single parent and also not earning bundles in salary.

By the way, I've tried doing the online thing to get an idea but it was hopeless - I think those calculations are so rigid they don't take into account any particular circumstances. The computer says no!!

to comply with the new rules lenders need three years of tax return data
without that you'll pay through the nose

I don't even think paying through the nose is an option anymore- if you can't afford the repayments (particularly on inflated rates) or don't have the required accounts- you won't get the loan.

The trouble is merrily it's the computer that makes all the decisions nowadays- if it says no you are pretty much stuck. There's very little manual underwriting anymore and no one will put their arse on the line for your particular circumstances.

3.5 times your income on your own with no debts, no children and no 'frivolous' outgoings is do-able but all the above will chip into what it's deemed you can afford.

Most of the online calculators are on the generous side too so if they aren't coming up with what you want, you will struggle.

Hmm, you paint a grim picture Bear. Are you in the mortgage market yourself? What I've heard is that it's much better to use a specialised broker rather than relying on a one size fits all ( or not) high street lender, where you'll sit through a three hour interview and still get turned down. Brokers are still valid as they know the market and know the quirks of each lender.

Mortgage lenders DO want to lend, as it's how they make money!! so it's a question of being realistic about figures, making sure your credit rating is squeaky clean and getting the outgoings down.

I'm not a broker but am an accountant.

The basics are that a lender can no longer risk lending irresponsibly- that's it. That doesn't top trumps them wanting to lend any more.

If you can't afford the payments (based in their criteria) they won't lend to you. It doesn't matter what you think/ know you can afford.

3.5 times your income with the required, audited, accountants is achieveable but your income multiple isn't the main criteria.

If your outgoings are too high you just won't get that kind of multiple.

I'm not trying to paint a grim picture- just being a realist.

Has the broker you've spoken to discussed your outgoings with you?

If he hasn't then run a mile.

It's difficult to gauge what level of outgoings might be too high though, isn't it? So, what's included as reasonable expenditure and what isn't? What level of financial buffer is acceptable in case you run into financial difficulty? How much are you supposed to have spare each month aside from the mortgage? There can't be a standard yardstick so surely some level of discretion comes into it. If you can shed any light on this particular issue, please do!

There's no hard and fast rules merrily that's the trouble with the MMR regulations; they're not prescriptive so each lender will interpret them differently.

Not all lenders accept all types of income, likewise not all include the same expenditure when looking at affordability.

Honestly, the online calculators are pretty good at giving you an idea of what might be possible and prompt you to include any 'committed' expenditure- if they aren't allowing you to borrow anywhere near what you need, you will struggle.

Lenders really don't exercise discretion on affordability- the computer either says no or it doesn't and they won't make exceptions for your particular circumstances.

Even if you know you can make ends met- they won't deviate from their affordability parameters. That's why many people are stuck paying more rent a month than a mortgage would cost- the lenders just won't allow a borrower to commit the same level of expenditure on a mortgage as they already pay in rent.

There will be lenders who are more appropriate for you to apply to if you are in the rough ball park re affordability but if your broker hasn't even discussed your outgoings/ affordability and is just bandying around income multiples then look elsewhere.

Another accountant here - who signs off the affordability forms for clients and is in total agreement with bearbehind
THe rules have changed, back to what they were in the mid 1980s

3 years of accounts, and 3.5 times income multiple- don't bother with a broker, use a bank/building society that offers the best deal.
They'll have to refer to the underwriters possibly, due to the SE status, but as long as you've got your SA80s (or SA60s? can't remember the number) you'll be fine.

Just a bit of advice (from another accountant!)

Ring up the revenue well in advance of the meeting and request your last three years SA302s (which are the tax calcs based on your submitted returns).

Most providers will ask for these and saves time having to request them and wait for hmrc to get their arses in gear.

They'll have to refer to the underwriters possibly, due to the SE status, but as long as you've got your SA80s (or SA60s? can't remember the number) you'll be fine.

Are you the broker the OP saw?

You can't possibly say 'you'll be fine' when you have no idea what she can afford.....

I'm going on the basis of her not requesting more than she can afford! Because why would anyone do that?

I'm obviously not a broker- I recommended not using a broker.
I am someone on a SE mortgage though, hence knowing what they'll accept.

I am going on the basis of her not requesting more than she can afford! Because why would anyone do that?

The problem is that it isn't the borrower who gets to decide what they can afford- it's the lender.

I am someone on a SE mortgage though. Hence knowing what they will accept

Knowing what proof of income is required is only part of the process. Did you get your mortgage before April this year? If so the goalposts have moved since then. It's not just proving what you earn- it''s proving that you can afford the repayment, even when interests rates rise.

3.5 times a good income is much easier to achieve than 3.5 times a low income because general expenditure can be trimmed back prior to the application so your disposable income looks higher.

If your income is low, as the OP says hers is, and you are a lone parent, it's unlikely that you have the option of cutting back as much of your income will be account for.

Also, lenders are likely to take an average of previous years earnings so if the OP's business had a bad year in the last 3 or has been growing over the last 3 the income used for the affordability will be based on a lower figure than this years earnings.

The comment about the online mortgage calculators being hopeless is very telling- they are set up with the lenders lending parameters and are able to cope with SE so if it's saying no or noway near what she needs then that's not going to massively change.

I have to agree with the changes, we are upsizing considerably and are both working for ourselves. Even with excellent credit scores looking to borrow 2 years of combined earnings we were put through the mill. We got a mortgage in the end (Thank goodness I was ready to drop it at one point) at £60 more/month that what we pay now for the smaller semi detached house. And we have heard that it will be even harder from October when some new legislation takes effect with lenders looking for paid off deals by the time of clients retirement.

If you go back 30 years when I first got a mortgage they would only lend 3x income so 4 is actually better and interest rates are now very very low compared with what we used to pay.

However yes the new criteria are tough. When I was thinking about a remortgage this year I went to a broker who could get one (and brokers are better particularly those who specialise in the self employed). My daughter who bought a buy to let used one too and he was good - that was before the April changes this year.

As people say above some of the lenders are being very very strict. My advice to new parents is "buy before you breed" (because once you have a child you lose an income or are paying £30k a year in childcare costs which reduces hugely what you can borrow). Also the lenders I believe are only allowed to lend to a limited number of people higher multiples as the state is choosing to interfere in the free market so much (which I regard as a mistake as a free market person).

My 25 year mortgage finishes next month
3 x 1 + 1 x other
and so it should be

Repayment only unless you are self employed in which case IO only with ability to pay off 10% of capital in any year over the 20 years (my maths is sound)

greengrow
At least Europe bans 'non recourse' mortgages : one of the hidden nightmares of the USA

I had to provide not just three years tax returns, but also three years audited accounts to dove that I actually drew down money from the business.
Even then I had to speak to the underwriter and point out that my drawings were on age 9 and line 11 as they claimed they could find no drawings in the accounts.
The hoops are very high and tricky to jump through.

Yes our process was similar we had to provide the last 2 years of SA302's then hubby was required to provide the last 2 years of accounts (he is a ltd company), then 2 weeks later they asked for last years set of accounts which hadn't yet been produced. So the poor accountant had to get his skates on and produce the accounts at short notice which he did bless his little cotton socks.