Darren Pescod, CEO of Theasktheexpertdarren Mortgage Broker LTD, offers his advice on a number of common questions and situations his clients face.

Q – ”I am self-employed; can I still get a mortgage as I don’t pay myself a high salary?”

A: Most people assume that you need 3 years’ worth of trading accounts to get a mortgage – only a few lenders now have this approach to their lending criteria in today’s market. There are lenders out there who will lend to you based on just one year trading and one year’s accounts so all is not lost. There are also lenders who will lend to you based on two years’ tax returns and they won’t ask for your accounts so there is a potentially better deal to be had by approaching this type of lender – An experienced mortgage broker will know the lenders criteria and will be able to look at all of these options to see which deal offers you the best value, whilst at the same time meeting the lenders underwriting criteria.

You haven’t mentioned in your e-mail if you are a sole trader or a Limited Company as this can also affect the lender we approach on your behalf. If you are trading via a Limited Company you have probably been advised to take a minimal PAYE salary and the rest of your annual package in the form of dividends. Thankfully, dividends are taken into account, so if you draw a small salary this should not be a stumbling block for you. We also have access to lenders that will look at the overall net profit of the business, rather than what you have taken out of the business as and when required. If you are a sole trader your net profit will be used.

Your next step would be to send through your accounts and tax returns, along with a budget planner and of course some personal detail. This would enable us to run these figures through a selection of potential lenders’ affordability calculators allowing us to get an idea of what level of borrowing could be available to you.

 


 

Q – “I am buying an investment property on a ‘buy to let’ – Should I buy this in my personal name or a Ltd company name due to all the tax changes?”

A: Very good question and the answer is not a straightforward one. First of all you need to take some tax advice from a tax specialist or an accountant as your current tax bracket could change and could make the difference in the answer provided. The new tax changes being implemented over the next 3 years are extremely harsh for landlords and careful consideration needs to be given on the ownership structure of the property. Thankfully we have seen a few more lenders now offering deals for Ltd company mortgages whereas in the past these were few and far between which meant that the lenders could put higher margins (thus higher rates) on these types of deals –  In recent weeks we have seen a lot of Ltd company mortgage rates reduce in line with standard buy to let rates which gives you, the investor, a lot more choice.
My advice… Get a quote for your new mortgage on both scenario’s (in your personal name and a Ltd company name) and then check with an accountant to confirm which route and ownership structure would be best suited for you.


 

Q – “I have a default on my credit file; can I still get a mortgage?”

A: Hi, this depends on the size of the default, whether or not it is satisfied and the date of the default. For example, a £200 default from 13 months ago which has now been satisfied would not be a problem for most lenders. In comparison a £1500 unsatisfied default from 6 months ago would be near impossible to find a willing mortgage lender.

Every lender has different criteria on how they deal with a default showing on your credit file. Some will look at the size of the default and the age of it, an example of this would be if it’s over 12 months old and under £200 then most lenders would be keen to lend. Other mortgage lenders will need the default to be satisfied regardless. Some lenders will even consider a much larger default running into thousands of pounds but in this scenario the lenders will want the default to be at least 12 or 24 months old. To add another layer of complexity ? confusion on these various  examples some lenders will lend if there is a good reason for the default and it wasn’t just a case of bad financial management.

In summary, there is potential to get a mortgage but we would need to know more about your personal circumstances. The best way forward in this scenario would be to provide your mortgage broker with a copy of your credit file and then a good mortgage broker will quickly match your file to the lenders criteria to see who would be willing to lend and provide quotes off the back of this.

 


 

Q – “I am 64 and my lender has said I need to pay back the mortgage now as it was interest only. Can I get a new repayment mortgage over a new 15-25 year term?”

A: Thankfully the answer is now YES. In recent months we have had a few more lenders changing their lending criteria to allow the older borrowers the availability to borrow into their retirement, with some lenders offering 25 year mortgage deals even at the age of 64. Of course, the lender’s criteria would need to be met which would mainly be the reliance on your income into retirement to support the mortgage – this income could be from a variety of sources including private and state pension, rental income and earned income if available. A clean credit history would also be a requirement. The rates are still very competitive and you are not penalised for borrowing later in life.  Lenders offer a variety of rates including short and long term fixed rates; they may even consider an interest only mortgage again although this really does limit the choice of lender that we can approach. In summary, age is no longer a barrier to obtaining or extending your mortgage deal. If you find yourself in a position where you are being forced to repay an existing mortgage deal or are looking to move then options are available to you.

 


 

Q – ”I have read that 100% mortgages are available again – Is this true?”

A: Yes it is true, 100% mortgages are once again available for first time buyers, however they do come with a few T’s and C’s as you could imagine. There are a few variations of the 100% mortgages being offered by lenders and these are probably best given as examples of how they work:

Example 1: No deposit needed, however additional security will be needed in the form of a charge against a family member’s property. This charge will be for 35% of the amount you are looking to borrow and your family member must have at least 40% equity in their home.

Example 2: No deposit needed, however a family member would need to provide 10% of the purchase price as security with the lender in a separate savings account – Your family member would get their savings back after 3 years with interest.

Example 3: Shared Ownership – We now have a lender that will offer you a 100% mortgage on your share of the property.

 


 

Q: ”I am currently in a fixed rate mortgage, is it worth swapping mortgage deals as the rates are much lower at present?”

A: Hi, this all depends on how much of a saving can be made on the new mortgage deal, versus (1) the penalty you would have to pay to exit your current mortgage deal and (2) the costs involved in securing the new, lower mortgage rate.

In my experience, the savings that can be made rarely outweigh the penalties you have to pay. The good news is that it is a very quick exercise to check and to give you peace of mind. A good mortgage broker can have this checked for you within 5 minutes (at no cost) and all you need to know is how much your redemption penalty is and when the fixed rate period ends.

There are some exceptional circumstances when clients swap into the lower rate, regardless of whether this is financially beneficial for them. This is very rare and is only ever done / considered when a client is desperate for an immediate monthly saving. I would advise anyone to avoid this scenario where possible. On a final note, these new and lower mortgage deals can be secured up to 6 months in advance of when your current mortgage deal expires, so it is always worth an exploratory chat.