Alistair asks: “I wish to move from my £210k house to a £305k property. Problem is I own a business and have always lived on the smallest amount I can (around £18k a year). What would you recommend I do to get a mortgage?”
Q&A 69 – Mortgages For Self Employed – Shownotes
I wish to move from my £210k house to a £305k property. I currently have £90k equity, meaning I’ll need a mortgage for £215k.
Problem is I own a business and have always lived on the smallest amount I can (around £18k a year). I have no problems in making payments as I can always take more out of my business if necessary.
Problem is getting a mortgage with a low income- so my idea would be to get a BTL mortgage. Looking at rates I will be paying about £100/month more than a conventional mortgage, but it won’t be judged on my income.
Obviously I wouldn’t disclose to a broker that I would be actually living there, but provided I keep up the payments it will never be called into question.
So are there any other pitfalls in doing this?
Lying On Your Mortgage Application Is Illegal
Alistair. Let’s start with a warning. You ask whether there are any OTHER pitfalls. Well, beyond other pitfalls, you need to understand that your plan of trying to get a BTL mortgage on a property that you’ll be living in yourself is actually illegal. That’s a pretty big pitfall I’d say!
You might be tempted to try something clever with your business or with a family member, etc, but I would recommend that you don’t try to go behind a lenders’ back as, in one way or another, this usually ends in tears.
Instead, you’ll want to look into your all above board options.
What Mortgage Can You Get With Your Income?
Firstly, you could think about what level of mortgage you could obtain based on your income. You say that you pay yourself £18k a year. Based on that, you may be able to obtain a mortgage up to 4.5x your income, which would be £81k. If you have a lot of built-up capital reserves in your business’ retained earnings account then you need to see if you could withdraw this take your need for a mortgage down from £215k to £81k.
This probably isn’t the case (and if it is then you need to think about how you are effectively using your capital reserves in your business).
A more realistic course of action may be speaking to a specialist lender who will accept your audited accounts (or accounts that have been submitted for tax purposes and checked by an accountant). Some lenders will look at the business accounts (revenues, expenditure, strength of the business balance sheet) to see if you, as a sole owner of the business, would be able to afford a mortgage at that level.
However, given the gap between the desired mortgage (£215k) and your salary from the business (£18k), you may struggle to convince even the most generous lender.
What Other Options Do You Have?
So, what other options do you have? Well, not many really. You could stay where you are and focus on working on the business to provide yourself with a larger salary, or you could possibly apply for a joint mortgage with your girlfriend. However, if you go with the latter, make sure that you think about everything from a legal standpoint, so that you both know exactly what would happen if you split.
In summary, obtaining mortgages for self-employed has become increasingly difficult since the financial crisis of the late 00s. From an independent standpoint, I’d have to say that this is actually a very good thing as irresponsible lending practices and self-certification caused a lot of people a lot of pain last time round.
However, Alistair, from one self-employed business owner who has recently gone through the process to another, I feel your pain man!!
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