Let’s say you’re thinking about moving house. You’ve been dreaming of it and working for it for so long, the beautiful detached house in the country. Quiet, but still with neighbours nearby. Close to amazing schools, a decent coffee shop and pretty little wine bars…
…and then one day, the perfect opportunity pops up.
It’s literally perfect.
Maybe it needs a bit of work, but the price is perfect too.
You WANT it.
So how do you make sure you’ve got all your financial ducks in a row, so the dream house doesn’t slip through your fingers? What do you need to get sorted? And at what point should you start?
At the moment, it seems like the internet is full of news about mortgage interest rates – rates going up; rates going down; how people are paying so much more for their borrowing now, than they have done for the last few years.
What this does mean is that the best mortgage deals are being snapped up REALLY fast.
And if you’re not ready to go ahead, when your financial adviser finds you a good deal, you could find that by the time you are ready, that deal is gone. And the next one could be more expensive (considerably so!).
Even worse than that, the housing market is still incredibly competitive. If you’re not ready to move fast and get your mortgage in place, you could well miss out on your dream home when other buyers can move faster than you.
So the biggest thing is to make sure you’re mortgage ready and that when you go to your appointment with your adviser, you’ve got everything you need in place!
Here’s the biggest things to think about:
Step #1: You NEED to be able to prove your income
This is fairly simple if you’re an employee – payslips for the last 2 or 3 years and P60s if you want lenders to be able to use any overtime (always handy to know if your other half works in paid employment too).
But for us business owners, proving our income invariably gets more complicated. Because let’s face it, our income isn’t necessarily going to be the same each month!
So what sort of paperwork do you need? Well, there are two main ways that you can do this.
The first is to use your self-assessment tax return. It shows how much money you’ve taken out of your business as salary and/or dividends, and what you’ve paid tax on. That figure is the amount a mortgage lender will use as your income for a year. Most lenders will average it over two or three years, which can be great if your business is growing rapidly.
The other way you can get a mortgage – and one that might enable you to borrow more money – is to use your Limited Company accounts, rather than your self-assessment tax returns.
Of course, if you’re a Sole Trader or a Partnership, you won’t have this option. But if you’re a Director of a Limited Company, it can mean you can borrow much (much) more compared to using the figure on your tax return.
Why? Because often, we don’t pull all of the money out of our Limited Company. We leave some retained profits in this business – money we’re going to invest back into the business; money we’re keeping as a slush fund in case our takings go up or go down and so on.
But more than that, maybe just money we don’t want to pull out of our business. Because if we pull it out, we’re going to have to pay tax on it.
Sometimes, leaving cash in a Limited Company is actually the best option. There are some lenders that will let you use that retained profit as your income and then add back on the salary that you take. Which – when it comes to the size of mortgage you can get – can mean quite a lot more for some business owners!
When it comes to getting a mortgage, this is why it’s SO important that you speak to the right financial adviser. Someone who understands what it’s like to be a business owner and can give you advice based on which paperwork you have and how much money you are likely to be able to borrow (especially if you’re in the habit of leaving profits within your business).
So that’s the first thing – get your ducks in a row now, so when the dream house presents itself to you, proving your income doesn’t trip you up at the first hurdle.
Step #2: You NEED to be able to prove you are a reliable borrower
The main thing here is getting your credit report in order:
- Making sure your address is up to date on the electoral register
- Not missing payments on credit cards or loans
- Not going over your overdraft limit
- Making sure you don’t have too many credit searches for new credit products at the same time
- And so on!
So if you know you’ll be wanting to get a mortgage in the next six months, now is not the time to be applying for new credit cards or loans (unless you really have to).
It’s also likely that a lender will want to look at your bank account/s, so they can work out whether you can afford to repay this new mortgage based on what the monthly payment is going to be.
They want to see that you’ve paid your mortgage payments on time and to get an idea of how much you spend on utilities, council tax, food and so on – basically all the things we spend money on.
In all honesty, this part of the process is becoming more important than ever, in terms of mortgage affordability.
Some people have had a big shock recently because at the time of writing this, a 5 year fixed rate mortgage is going to be somewhere around 4.5% to 5%. The 2 year rates are even higher than that.
And when you think that just a year or 18 months ago, people were paying around 2% for the same amount of borrowing – it’s easy to see how some people’s mortgage payments are now a lot more than they were expecting or used to paying!
So getting your spending and bank accounts in hand, to prove affordability, really is a priority and the earlier you do this, the better.
Step #3: Be proactive with your current mortgage
I want to mention this final step here because whether you end up actually moving or not, it’s SO important right now – that as soon as your current mortgage deal is coming to end, you are good to go on your next mortgage (whether that’s moving house or getting a new deal for your existing home).
This means speaking to your financial adviser around 6 months before the end of any penalty period, like when your fixed rate or early repayment charge will be ending. Double check when that date is and get it in your diary now, so you can have a conversation with them about the types of deals available and how soon you can put your application in.
In some cases, the best option is to stay with your existing lender. In other cases, it’s better to go somewhere new and get something more competitive.
What you absolutely do not want to do (I’m guessing), is leave it too late and end up paying way more than you have to!
The best option is to speak to a ‘whole of market’ adviser, who can look at all the mortgage products available and find the best option for you.
This is something I do a LOT of – hundreds, if not thousands of mortgages over last 15 years, and I love working with business owners most! – so if I can help, send me a message here and we can chat about the best way to move forward.
And finally, if you want to know more about getting mortgage ready as a business owner, I also have this brilliant free gift for you:
It’ll teach you exactly what you need to do, to get your dream home (without any stress!) and to get accepted for a mortgage first time.
Just click on the image above or get your free copy here now!
Until next time,
Claire
