Mortgage application - affordability criteria a problem - best approach?

[Wiifitmama]

We are moving. We have almost fully paid off our current mortgage which is with our bank (First Direct). We applied for a new mortgage with them for our new property. We are asking to borrow £270K on a property purchase of 1.2M. After a gruelling total of 5 hours on the phone, they have come back saying they can only offer us £217K which is just not enough for us. This is all based on "affordability". They are totally not interested in the fact that we are borrowing such a small proportion of the purchase price, they are refusing to look at income from my new business as it has not been running long enough, they are not taking into account that we have had a mortgage with them for our whole adult lives and have never defaulted and now paid it off.

So, we need to apply with someone else. We thought sticking with First Direct would be an advantage but obviously not. What is our best approach? A broker? Or are there other lenders who are known to think outside the box a little more?

I have had a good experience with my broker, but definitely fin one via word of mouth.

So how does a broker work? Do they do all the stuff the bank did - the endless questions etc and then recommend which company to go for?

We recently had the rug pulled from under us with HSBC in a similar fashion (first direct are a division of HSBC) and when we went with a broker he said he gets on average 3-4 cases a month referred to him where clients have been let down by HSBC. They gave us a decision in principle and then cheerfully offered us £40k less when we made the official application. Like you, it just didn't work for us and they helpfully suggested we would just need to increase our deposit. Sadly I don't have a further £40k hiding down the back of the sofa.

Completely deflated and thinking we would have to pull out of the sale we used the broker recommended by our estate agent and he identified Natwest as being our best bet. He took a lot of hassle out of the process and we got our offer last month.

I would recommend using a broker and if you can, one that has been recommended. FWIW Natwest have been very flexible with us - I'm about to go on maternity leave and my partner has a slightly untraditional set up with his employer but they haven't been problems for Natwest. The other bonus is that they don't take into account childcare costs.

Good luck.

Brokers basically look at your financial position and decide which lenders are the most appropriate for you so yes, they do ask the same questions a potential lender will.

Given you already have one credit check on your file from this application then it wouldn't be a good idea to just take a shot in the dark by applying direct to another lender yourselves.

You will struggle with your self employed income if the business is very new if that is your only source of income though.

The amount of equity in your property isn't a huge factor in assessing what a bank is willing to lend you as that could only be recovered in the event of repossession and that's not what they want to happen.

They lend money based on your ability to pay back what you borrowed without having to sell the property- they can't lend you money if you don't meet their criteria to repay it without selling the property.

Normandy - that is really really helpful, thank you! My this going to ask his financial advisor for a mortgage broker recommendation tomorrow and we will go that route. Hopefully they can come up with a lender with much more common sense! We are such low risk borrowers.

A good broker will know the ins and outs of many different mortgages and also should be 'whole of market' which means not tied to any specific bank or building society.

You could also have a look at MoneySupermarket Mortgage Calculator, not sure how useful it is in a complex situation though.

We have ours with The Coventry - they were prepared to lend us nearly 4x joint last time we moved [even though we would have totally struggled to pay it back]. Also less than 50% loan to value, so low risk.

If you are anywhere near Cambridge, I can recommend a broker. She charges a fee, but if you end up taking a product through her she gets commission from the bank and refunds the fee.

Sadly nowhere near Cambridge. We are in London, but thanks.

Try London and Country brokers, they charge the lenders a fee so free to you and they got us a mortgage years ago when we were struggling to get one (was near 5x income for a redevelopment). We were low risk as we had a lot of equity in the property (merging flats into one house, so had almost paid off the mortgage on one flat and wanted to buy the other), but several lenders turned us down. They were great.

Thank you!

I can recommend a great broker in London. Pm me if you want details.

They will be looking at a multiple of your income for affordability, not a percentage of the property value. Try a broker. But echo what pp said about new business and lack of records which will affect it, because the income is what the mortgage is based on.

We were looking (generally, we aren't on the market yet) recently and were told by my IFA that we would need to provide 3 years financial records for our business to prospective lenders (not a problem for us, but I didn't ask what would happen if we couldn't). Your LTV ratio is great, but again, it's not about getting it back by repossessing now, it is all about affordability. Hope you get something sorted.

A broker will find you the right lender. Does your business have any full years filed yet? Some lenders only need two years accounts to take self employed income not account.

I agree, a broker is the way forward.

We were turned down by HSBC in similar circumstances to you.

Our broker found us a Santander mortgage with no problems and we moved 18 months ago now. All is not lost!

Yes it was two year's worth of accounts, but covering a three year period we were asked for (as each set also covers the year before).

My husband is the main earner. I provided three years self employed accounts but I started a new profitable business 6 months ago which they won't take into account. I just find the whole process ridiculous. We are such low risk compared to many. Anyhow, we will definitely try a broker.

First Direct a and HSBC are tough lenders. I had a very complex mortgage to take out last year (not your circs but affordability was one issue) and neither would look at me despite me already being an HSBC mortgage customer. I had success with Halifax and my broker told me they are one of the more lenient/flexible lenders. Get a broker and get them to do the legwork for you, mine cost £99 and was worth her weight in gold.

Goodness! I wish I had asked on here first! I just assumed that as we were long standing customers and paid off a mortgage with them that they would be the simplest to get our next mortgage with. How wrong can you be!!

Nope! Makes no difference. In fact HSBCs mortgage advisor actually advised me to go elsewhere with my situation because their criteria was so tough - this was before I had filled in any forms so I didn't get a credit check for nothing (she was very nice!). There are much more flexible lenders out there but try posing your question in the money saving expert mortgage boards, the people on there are so helpful and really gave me good advice.

Unfortunately 'low risk' isn't defined by your loan to value ratio or your previously settled mortgage- it is defined by your ability to repay the sum of money you currently wish to borrow.

HSBC are generally considered to be one of the stricter lenders but I don't think anyone will accept 6 months trade in a new business.

The 3 years accounts from the other business aren't relevant if that business isn't providing your income now.

A broker will know if there is a lender who can help you secure the amount you need based on just your husbands income.

Is it possible to do this on your husbands income alone? (i.e. ignoring your business altogether)

Ignore anyone that tells you that you can't get a sole mortgage if you are married - I got one, it is unusual but can be done.

First direct would lend us half what nationwide have. I think a broker will be your best bet as they will know which lender's affordability criteria suits your profile.

Thank you all. My dh spoke to a mortgage broker today who was confident we could get the money we are looking for. So we will do the application process through him and have stopped the one through First Direct. Thanks for all the advice!

A more profitable business started 6 months ago won't be taken in to consideration I'm afraid, as you won't have any tax returns yet. I can't see a broker being able to assist with this. Is waiting until the start of April an option, when you get your tax return documented? Even one years figures may help.

Sorry OP didn't read your update! Well done and good luck!