You’ve probably seen lots in the press about mortgages, over the last few years.
Especially in the last 9 months, as mortgage interest rates have gone through the roof and caused all sorts of panic as people’s fixed rate deals come to an end, and they worry about whether they’re going to be able to afford their new mortgage.
But despite this, life goes on and there are still plenty of people who want to move house!
The media will have you believe that nobody is moving house; that you can’t get a mortgage and that the housing market is stuck.
When actually – as a qualified financial adviser who deals with mortgages day in, day out – I can tell you nothing is further from the truth.
So what can you do? What things do you need to have in place to both get that mortgage you need and move forward quickly?
Here are my top 5 tips that you NEED to know, to be in your dream home by Christmas (or whenever you are ready)!
#1: Get Your Paperwork In Order
As a business owner, you need to be able to prove to a lender that you are a good bet for lending money to, and they’re going to ask for some paperwork.
As an employee, this would be 3 pay slips and a P60. But for business owners like you and me, it’s a bit different.
If you’re a sole trader, you’re likely to use your SA302s. In effect, this is the last page of your tax return that tells the lender how much profit you made last year – the money you paid tax on.
Typically, they’ll look at your figures for the last 2 or 3 years to work out how much you can borrow.
If you’re a limited company, you’ve got a couple of other options because many directors of limited companies don’t pull all the profit out of the business. Especially if someone else in their household earns a salary too or there’s more than one income stream coming in from somewhere else.
To explain this more clearly:
If your company XYZ Ltd make sales of £100,000 and has costs of £20,000, you’ve made profit of £80,000.
If you only need an income of £50,000 a year to support your household and lifestyle, you might choose to take a small salary and some dividends up to the £50,000 limit, so that you don’t end up becoming a higher rate taxpayer. This is really common – and £50k is what will show on your SA302.
But what about that £30k of profit that’s left behind in your business?
Well, this is where working with a financial adviser can REALLY help and pay for itself many times over. We know which mortgage lenders will allow you to use those retained profits – that money left behind in your business – as part of the calculation to work out how much they will lend you. Because yes, you’ll have to pay more tax on it, but you could take that money out if you wanted to!
#2: Check Your Credit Score
Your credit score is massively important because it gives the lender a snapshot of how well you have looked after paying back money in the past.
It will show whether you have bank accounts with an overdraft; credit cards; loans and car loans; whether you’ve missed any payments and how close you are to your credit limit. If you’ve already got a mortgage, it will show that too and the lender will use all of this information as part of their decision making process.
The key here is to go through your credit report with a fine tooth comb, to make sure it’s 100% accurate. If you spot anything that’s going to affect your mortgage, the earlier you speak to a financial adviser to sort it out, the better.
If you’ve not got a copy of your credit file – or you haven’t really looked at it for a while – I’d highly recommend doing it now. Even if you’re not totally ready to move house yet, it gives you as much time as possible to get on top of anything that you need to.
This is the credit file bureau that we use: https://peacetogether.co.uk/creditreport (Please note this is an affiliate link, there’s a 30 day free trial and I make a commission if you then go on to purchase. I’m sharing it because we’ve used them all and this really is the most detailed!)
#3: Set Some Money Aside For Fees + Charges
When you’re a first time buyer, you need money for a deposit and stamp duty and solicitor’s costs and all sorts of things.
When you’re moving house, it’s easy to think you don’t need quite so much cash in the bank. Which unfortunately isn’t quite right!
You still need to factor in stamp duty and a solicitor and estate agent’s fees for the house that you’re selling. You still need to pay for mortgage arrangement fees, searches, valuations, and surveys. Then there’s all the other costs associated with moving house, like if you want to pay for cleaners to come in before you leave or move in. And a removal van, maybe with a packing service, which can especially stack up if you’re moving a long way or the house is big or rural or tricky to access (don’t try and do it in the back of your car or in a friend’s transit van, whatever you do – we’ve probably all done that once, I certainly have and it totally isn’t worth the added stress and hassle!).
#4: Get Crystal Clear On Your Budget
My 4th tip is to have a really good look at what is available for your budget. You need to be 100% clear on what your budget actually is and what you can stretch to, in terms of making sure the mortgage payments are properly affordable for the house you want to buy.
When you look at the house you’re selling, the amount that you sell your house for minus any existing mortgage gives you the equity. This is the money you’ll use for a deposit on your new house.
If you’re buying a bigger or more expensive house, you’re probably going to need to take a bigger mortgage, which obviously means your monthly payments are likely to go up (especially as mortgage rates have probably gone up since you took out your last mortgage).
What you don’t want to do is find a house you love and know on paper you have enough to be accepted for a mortgage on it… but then look at the figures and realise such a big mortgage payment is going to seriously curtail your standard of living and that you’re not going to enjoy living in your new house at all.
There’s just no point spending every penny of your disposable income moving into your new house, if it means that you’ll have to live there by candlelight and exist on economy baked beans. Nor do you want to fall in love with a house and then have to walk away from it, which can be gut-wrenching. So knowing your real budget before you start house-hunting is crucial!
#5: Tell Your Accountant NOW!
My final tip today – and probably the most important one – is to tell your accountant NOW that you’re thinking about moving house and getting a new mortgage. This is just as important if you’re remortgaging as it is when you’re buying a new home.
Why? Because the default position of most accountants is to try and save you money on tax.
They do this by putting through as many expenses as they can, so that your profit on paper decreases and you pay less tax.
Which is great in terms of your tax bill, but really not great in terms of a mortgage!
The reason you need to speak to your accountant as soon as possible is that some of the things they claim for don’t necessarily have to be claimed in this financial year, depending on when the money was spent and what it was spent on.
It might be that an expense can be carried forward or carried back, which in turn might make your figures look better when it comes to submitting your tax return and your accounts at the end of the year. All of which might be better in terms of getting your mortgage and the amount that you can borrow.
Over the last 15 years that I’ve been helping clients with mortgages, I’ve lost track of the number of people who tell me they earn £100s a day or per week. And yet when they send in their paperwork, it shows a profit for the year of £13,000.
When I question this, it’s “oh yes, my accountant wrote this off; my accountant wrote that off; my accountant wrote something else off too”. And before you know it, the business that made £80,000 in sales shows a profit of just £13,000.
It might be great that you’re only paying tax on about £500 over the tax-free limit. But no mortgage lender is going to let you borrow the amount of mortgage you need, if they think you’re only earning £13,000 a year!
But if you don’t communicate this with your accountant, they’re not going to know.
One of the conversations to have with your financial advisor – and a BIG part of the reason for finding a financial adviser you trust and can speak to on a regular basis – is that when you’re ready to think about moving, you can speak to them about the sort of income you need, to get the mortgage you want.
And this is something we do as part of the money coaching work inside my Asset Accelerator® signature programme!
So many of the people I work with want to plan out their route to their dream home, so they know exactly what they need to do, to make it happen. I help you crunch the numbers to figure everything out – like how big a deposit will you need? How much money for fees and all the other costs? What does your business need to look like in terms of profit, for you to get the mortgage you want?
And then you know! It might be that you need to grow your business over the next 18 months. It might be that you want to think of a way of offering a slightly different service, making more profit and reducing your business costs, so that you can actually get the mortgage for the home you truly desire. Everyone is different and it might be any number of other things that you need to do besides.
But if you don’t crunch the numbers… how are you going to know?
Here’s the link to join us all inside the Asset Accelerator® now.Or if you’ve got any questions, just click here to send me a message and we can chat it all through!
Until next time,
Claire
