SAHP causes very low Agreement in Principle?

[ClonedSquare]

We've been planning to move but have come to a problem when getting an agreement in principle. The figures were being approved for are way lower than we expected.

My husband is self employed, I'm a stay at home parent/housewife. Son does attend nursery two days a week. For 21-22 and 22-23, my husband's income (salary and dividends) was £75k and £85k. This financial year, he will have earned £100k. Our only expense on the affordability side is nursery fees and we make significant savings each quarter.

Halifax approved us for £175k. The web calculators were saying we could have up to £450k, so although I knew we'd take a hit having a SAHP and a dependent child, I didn't expect it to be that much.

They're offering us less than we borrowed for our current house, which we have zero issues paying for and will be fine with the rate increase when we remortgage!

We've got a mortgage broker we intend to use so I've sent him these questions but I'm really panicking now.

Is this likely to be the case with every lender?

Is this likely to stop us remortgaging in December?

Definitely go back to the drawing on an AIP, your broker should have experience with company directors! I've signed a few accountants certificates in my time where we provided profitability forecasts. When there were current contracts that "guaranteed" earnings the banks often took those into account too.

When we were in this situation, DH got the mortgage on his own for 2 years then added me when we remortgaged and I was working again.

Could you consider that or are you likely to be not working for a while?

@FriendlyNeighbourhoodAccountant You are fantastic, thank you! We're using the same broker as last time (when husband was in the same employment position) so hopefully he can sort it. It sounds likely he was doing some things in the background that we didn't realise/understand that time as well.

@FusionChefGeoff We could definitely leave me off the mortgage if it helps. The plan was to be back at work by the end of next year anyway, we just don't want to wait that long to move due to school applications etc.

Lending criteria waxes and wanes with the general economy and the amount of overall risk that lenders want to take on. What you were offered x years ago will not be relevant today.

But a specialist broker will sort you out I'm sure!

I understand, it just seems mad that the amount they're willing to lend us would be around £1000 a month. I doubt many people with mortgages are paying less than 1/6 of their net income for it!

Thank you for responding, and fingers crossed for the broker.

Not read full thread. Not sure if someone else has asked this, but is the mortgage lender who you have your banking current account with? We bank with HSBC (and have been with them for decades), yet when we have tried to get a mortgage through HSBC it always ends up going through to their underwriters, and they have always refused! We are financially secure, and I always wondered why this was the case, and speaking to someone once who suggested that as hsbc have really detailed access to our financial history and spending habits, they may be making decisions based on this data (particular spending habits etc). Not sure if this is true, but it is really very odd why hsbc have never wanted to provide a mortgage for us! My advice is to look elsewhere in the market (we got mortgages with Barclays and Natwest no problem). Good luck

I was just coming on to say the same thing, a SAHP is classed as a dependent so this might be why it's not offering you as much

Last time you applied, even though you were in lower paid job, you were employed. So the risk of both of you losing your job/being unable to work was low. You had one risk factor of your husband’s job in a relatively safe economical time. Now you have three risk factors (you aren’t working, a child and your husband’s job) in a more unstable economic time.

We were both employed but having a child and childcare fees messed with the affordability when we moved. Even though both our incomes had gone up, our broker said there was a lender who just wouldn’t touch us because we had childcare fees and their algorithm didn’t like the level of fees we had (4x days a week). Speak to your broker and they’ll find something.

What percentage is he paying himself vs dividends? Because dividends are never guaranteed, they may not be able to be taken into account. I know a couple of different people who paid themselves under £50k for tax reasons taking the remainder in dividends which then backfired trying to get a mortgage!

Yep we had to do that - DH is self employed and didn’t have two years of accounts. We ended up with just my name on the mortgage, which it meant I could borrow 4x my income and not 3x (what they had offered me with DH on the mortgage as well). Obviously that is a lot easier for a house purchase than a remortgage…

My husband is a mortgage adviser and often mentions this coming up with clients, it’s because if you are not working then you are classed as a dependent, and having only 1 working adult supporting the household makes you an even bigger risk for them because it means if your husband lost his job then you would have no second wage with which to make the repayments.

Leaving you off the mortgage would make no difference, if you’re living in the house and not earning then you are a dependent on the home owner/bill payer and so your affordability is greatly reduced as a result.

We got a mortgage last year and my being a SAHP didn't seem to affect our affordability at all, we have a mortgage of 4x my DH's salary.

I think banks need to kick themselves up the arse- it's probably computer says no and no humans are looking at it. They seem to be either completely irresponsible or totally illogical with nothing in between.

Surely by that logic, they shouldn't offer mortgages to one income families at all then?

Thanks, this seems likely. Hopefully our broker can do the arse kicking for us!

Why?

There’s nothing wrong with them offering it, but they do a risk assessment (as they do for all mortgages) and only having 1 income with an adult & family dependent on it does make you higher risk for not paying if that person loses their job. The result is that they will offer to lend you less money, to reduce the loss risk on their side.

It’s no different to them doing credit checks as they do on every mortgage, if you have bad credit that doesn’t just mean you can’t get a mortgage, but again they risk assess you, and as a result will typically offer you less.

A mortgage is you asking to borrow a lot of money, any lender will risk assess you before doing this and the most common result is offering you less to protect themselves.

We ended up buying in just my name for similar reasons, having DH on the mortgage as a dependent would have significantly reduced the offer. We're married anyway, so everything is a joint asset. We were told at the time that we could add him onto the deeds further down the line, but we never have.

We just managed to get an AIP for £380k from a lender that let us put husband as "director of a limited company" rather than self-employed so it sounds like @FriendlyNeighbourhoodAccountant was completely correct 😊 Thank you!

Amazing, so glad you've got it sorted! I know you said you weren't going to actually borrow the full amount but at least now you have options 😊

It's this. What if he couldn't work from tomorrow, which is even higher risk being self employed. That's your only income. Lower risk with two incomes, even if the total income is the same. I think you need a good mortgage advisor.

It's not just because you are a dependent. It's because when you originally applied 4 times your earnings were included. Now you've lost that and you are classed as a dependent against your dh earnings.

If he's a day rate Contractor there are lenders that will assess under Contracter criteria and lend based on a percentage of his day rate
This will give a much higher loan amount
Broker should know this and would know what lenders can do this

Our household income now is barely different from when we applied for our last mortgage, so it feels very silly to be cut down so much.

but was your previous income spread over two people earning an income and without a child?