Self employment, mat leave and remortgaging - agh!

[BananaHammock23]

I'm wondering whether anyone more savvy with mortgage matters might be able to offer any pearls of wisdom...

This will be long but want to paint the full picture as I feel it's all relevant!

I'm self employed (I work under my own limited company if that makes any difference). I have been for 7 years so I have all the books to back me up.

DP is also self employed and has been for even longer than me. They were a lot less irresponsible in their 20s than me, so when we bought our house, I paid towards the deposit and they got the mortgage. We pay equal mortgage and bills. We have a deed of trust. I'm not worried about this, but it's relevant.

We sold our house for more than double what we bought it for last year and ported our good fixed rate mortgage over to a new house, with an additional £50k bump up mortgage. We have £265k equity in the house, which I feel is good for our second home.

Now the problem: we have a substantial amount of debt owed to family that we borrowed for IVF that they now need (£30k). I'm also pregnant and have an unpaid and unsaved for maternity leave looming. We still have time to get some money together for a short leave, but we're talking weeks rather than months. We'd also like a new kitchen. So we'd like to find around £60k.

Our fixed rate is up in December, so I was thinking we could remortgage and release some equity. DP borrowed to their maximum potential, but we could apply together for a joint mortgage now.

My credit score isn't great (made lots of mistakes in my 20s!), but I have defaults that will be removed in October this year and a solid payment history for the last 4 years. I've made a real effort to clear any personal borrowing and feel that by the end of this year my credit score will be good enough for high st banks to consider me.

If we wait until the fixed rate is up in December, there's going to be a gap of earnings from my modest mat leave (and DP's parental leave) on our bank statements. Even though we have good earning history, I'm worried this will impact us. Does anyone have any experience of this?

I suppose I'm weighing up 2 options:

Remortgaging early in July before baby is born, potentially onto a very high rate because of my credit score. But we'll have good bank statements showing earnings.

The other option is to wait until December when the fixed rate has expired, remortgage and potentially be able to get a better rate if my credit score has improved, but we won't be able to show bank statements showing earnings as high as they were.

Also open to any other options! We have explored loans to pay this debt but nothing is as feasible as remortgaging seems. Keen to hear opinions.

Thanks in advance for any advice!

Your most recent accounts after October will be 23/24? What will they look like? Usual kind of annual figure?

@Toooldtoworry yes, the latest set of accounts for 23/24 will be average. It's more the recent bank statements I'm worrying about, but perhaps I don't need to?

Ok, so I spoke to my colleague you are best speaking with her or a similar broker because you do have options even with the historic defaults showing and it doesn't necessarily mean a horrific interest rate.

Also she said your bank statements showing lower income is not going to be the end of the world as you have an explanation.

@Toooldtoworry can I hop on and ask your opinion on similar question but for a full time employee? If remortgaging and switching to a new provider just as mat leave is starting will I have to do full I&E for the new provider? I can just remortgage with my existing provider in a few clicks and it's all done but the rate isn't quite as good. But worried I'll lose out by taking a month or so (potentially still not getting a decent rate because of my decreased income in the coming year and increased expenses (childcare) after that.

That's very helpful @Toooldtoworry - thank you! What do I search for to speak to someone like your colleague?! I feel like I need a more specialist advisor but maybe I'm just overthinking it

@Whataretheodds a remortgage to a new lender is a full application, payslips and likely bank statements, property valuation and Solicitors will need to act for you. You'll need to pass all of the affordability checks.
Much much more than the few clicks to stay with current lender

@BananaHammock23 you need a whole of market broker
Some charge fees, some don't

Start arranging it in October once your score is cleared.

Since you presumably pay yourself from your ltd company can you continue those payments into your bank account so they show in statement even after mat leave starts?

And start talking to a broker now as you may be able to tweak things to make them more favourable as you each have your own companies.

Hmm so depends where you live. There are some 'self employed' specialist mortgage brokers.

Although they are free L&C are not brilliant for the self employed (as much as I hate to say that) as they are free.

From experience John Charcol are usually pretty good as are CMME but I don't know what they'd charge.

Whole new app as previously stated. Some lenders better than others in this area. I'd definitely use a broker if you were considering switching lender if anything to see whether the embuggerance was worth it.

@slithytoveisascientist if there was enough money in the business I'd have paid myself a decent mat leave, but sadly I don't have the funds available to do that. That's what makes me worry so much about the bank statements if we wait until December when the fixed rate is up

Some lenders won't look at your bank statements

Not a mat leave if you can’t afford it but could you eg not pay yourself April-June and then make those payments in the months where mortgage providers will need to see statements?

@slithytoveisascientist hmm yes, that's a good idea, thanks! But still going to look like I'm earning half what I was before... I think I might be over thinking it!

You definitely are, but I understand why.

We've got to remortgage later this year and borrow extra for an extension. I'm stressing out about how my earnings will show!

From what I remember you can start the application 6 months before you need the mortgage. But the stuff on your credit file will be there. Talk to a broker.

Now I think (even more) about it... I suppose a lot of businesses have seasonal trade or earn more one month to the next. Some months I can take more of a wage from the business than others. As long as my accounts show that I've increased my earnings YOY, i suppose it doesn't matter as much when the money is coming in, just that it is. Makes me wonder whether the bank statement checks for self employed ppl/limited companies are the same...

Talk to a broker! They can advise you which months to pull more out of your business.

And do it soon in case there are things you can do to make the books look a little stronger - I minimised expenses and maximised profit for the end of the tax year so I could show a YoY increase.

Same situation as you, kinda, OP. I have a fantastic (free) broker if you want their details!

Congratulations on your pregnancy!
A suggestion of a plan - but I don't know if it would suit your situation without more detailed numbers and dates, so perhaps have a run through yourself:

1.Start living only on your DP wage going forward and save your salary.

2.Put the kitchen refurb on hold until you are in a more stable financial position.

2.Opt in to the government 6-month interest only scheme.
This would make your current monthly mortgage payments lower during this six-month period, (but would increase the overall cost of your mortgage over its full term, as you won't be paying off any of the capital during this time).
As your current interest rate is low, it could reduce your payments significantly. There are no checks for this, and it doesn't affect your credit score.

3.Add the amounts saved on the mortgage payments over the 6 month period to the savings pot that includes your salary. Use this and your salary to start to pay your relative back.

4.Stay on the fixed rate until December, then if you are back at work, you can apply for a short term fixed rate but don't yet take out further equity. Continue as far as possible to live on one wage and use this to pay your relative.

5.After the short term fix is finished, remortgage taking the equity you need for the kitchen, and any remaining debt owed to the relative.

It means essentially you are using the government scheme to hold back some mortgage capital to repay the relative, rather than a remortgage at a point where you are financially vulnerable.

https://www.gov.uk/government/news/chancellor-agrees-new-support-measures-for-mortgage-holders

...Also meant to say that part of the Government Charter of the scheme is support for people to switch to a new fixed deal at the end of their existing one provided they are up to date with payments (this is why I suggested taking a short term fix in December without taking out further equity, as you could potentially avoid affordability checks at that point).