Mortgage problems for the self-employed
We have recently dealt with a number of clients who have been looking to obtain a mortgage, either to move house, or to re-mortgage existing properties.
Lenders seem to be asking the self-employed to satisfy more criteria than ever. In the past, they would typically ask for the last three years accounts and a certificate from the accountant confirming that the figures were correct and that the client was entitled to all the profits.
Now, the first step seems to be to ask for forms SA302 from HM Revenue & Customs for the last three years. These forms are summaries of the income declared for tax. This is basically saying, we don’t think your account can be trusted to be independent, so we want to know what has been declared on your tax returns. There are two fundamental issues with an SA302; a) if you have bought new assets and claim capital allowances, they will be dedcuted from your taxable income and it looks like you have made much less profit, and b) HMRC only issue them on request and quote a three week timescale to send them. Not good if you are desperate to sort out a house move.
The second hurdle is then a request for projected figures for the next accounting year. How many of us can say with any certainty what our income will be next year? In most cases this will involved us having to look through the accounting records since we last prepared accounts, then trying to extrapolate these for a full year, ironing out any seasonal or cyclical changes. Another cost for the client to bear.
Finally, we had the most ludicrous request from a bank last week. Would we sign a certificate to say that the client’s income was sustainable in the future! The client himself couldn’t even say what his income was likely to be, and to ask a professional to put their reputation on the line in this manner seems like the lender just trying to absolve themselves of all responsibility for carryiong out their own credit checks and looking for someone to blame if the mortgage isn’t repaid.
In summary, if you are self-employed: – don’t leave your mortgage application until the last minute as the process is taking 2-4 months – budget for additional professional fees from your accountant and/or mortgage adviser – keep your accounting records up to date so that projected figures can be prepared accurately – have your annual accounts and tax return done quickly after your year end, so that you always have the must up to date figures lodged with HMRC