A client approached us for support in porting their current mortgage, which they had been making repayments on for 13 years, across to a new property.
The client was a self-employed business owner, and was on a fixed-rate mortgage with three years left on a 1.29 per cent rate. The client was looking to borrow £400,000 for a property worth just over £1mn.
Initially, we looked to get the best picture we could of their finances to understand their level of affordability.
Everything they told us aligned with the records they had shared for their business. However, at the time, their income was made up of a £12,000 salary, with the remaining part being made up of director’s loans and dividends from their business.
This was a short-term solution to their finances as a result of the Covid pandemic.
We knew straight away that the client’s current lender would be unwilling to accept a new application for a property with a salary as low as £12,000.
Unfortunately, some lenders only take into account salary income and dividends and not additional income from director loans, or net profit after tax.
As a result, we needed to have an open conversation with the client about their options. In order to switch provider, they needed to pay an early repayment charge.
Using our knowledge of different lenders we found a suitable solution in which a lender would consider our client’s salary and net profit after tax.
The application was submitted on October 24 and the offer was received on November 8.
There was a slight delay as the valuer needed to do a bespoke valuation due to the nature of the property that was being purchased. The mortgage secured had a rate of 5.5 per cent and the client could borrow the £400,000 they needed.
Unfortunately, in this circumstance, the client did lose their original 1.29 per cent mortgage, but the solution worked for them based on their individual circumstances.
When it comes to working with self-employed clients, it is vital that you build the best picture you can of their circumstances. You must also use your knowledge of lenders to find one which will support applicants with differing sources of income.
For newer brokers who may not have built up such a strong understanding of the market, it’s important to build strong relationships with lender business development managers.
Brokers can call their business development manager and have an open conversation about their client’s circumstances in order to build a better picture of whether they will be accepted or not.
We also find it helpful to develop a matrix of lenders we have worked with in the past, which can be regularly updated, to provide insight into which lenders might accept differing types of applicants in the future.