Can I borrow using my most recent accounting figures?


Lucy James

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Hi,

I’ve been reading through the articles regarding using your most recent accounts to obtain a mortgage and wondered if you’d be able to help us? Myself and my partner run a business as sole traders (in a partnership) but are struggling to get any lenders to agree to lend us enough money to buy in London. Our business has taken off and our individual income has gone from £13,500 to £15,000 and most recently £27,500 each. However we keep getting told lenders will average our income over the last 2 or 3 years and as you can appreciate it leaves us very short on the amount we need to borrow. We’ve moved back home and have been saving up a deposit and along with an offer of a gift from my parents we can get to 10% but are still coming up short with the lenders. Another broker has told us we’d need at least 15% deposit but it feels like we’ll never get there with rising house prices in London.

Any suggestions?

James


Hi James,

Thanks for your enquiry. It can be frustrating putting time and effort into growing your business only to be told it still doesn’t get you the mortgage you need, especially when you want to buy in the area the business is based!

A lot of people (customers and mortgage brokers) assume that lenders average over the last 2 or 3 years to work out the ‘salary’ they can use to judge how much to lend you. While it is true a lot of lenders you might be surprised to know that there are several lenders that look outside the box when presented with a good case. Where there is good rationale for the growth of the business lenders can be more flexible, so long as they are happy that the growth can be sustained.

It sounds like the business is going well but getting a lender to agree to lend more based on recent uplift in incomes can be difficult if your broker isn’t used to these kinds of enquiries.

Looking at your figures and a typical income multiple of 4.5x, we have the following maximum loans:

  • Average of last 3 years: £37,333 x 4.5 = £167,998
  • Average of last 2 years: £42,500 x 4.5 = £191,250
  • Most recent year: £55,000 x 4.5 = £247,500

As you can see a lender using just the most recent years’ accounts will lend significantly more than a lender using a 2 or 3 year average. There are lenders who’ll consider an application on this basis, some of whom may even lend up to and over 5x income, so hopefully these figures re sufficient to get you onto the property ladder in your area, if you make a full enquiry we can look at taking your enquiry further.

Cheers!

Pete

SUCCESS! After James made an enquiry we built the case on the most recent set of accounts and submitted to the underwriter directly. James has now completed his purchase with a 2 year fixed rate of 2.45% at 90% loan to value and a loan of £230,000.

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