Category: Business

We often get asked the question ‘can a company director still get a mortgage’? Well, the good news is, yes, you can. However, you may need to do a few things a little differently.

Why is getting a mortgage so different for a company director?

Well, in some fundamental ways, it isn’t that different. The same basic rules apply when it comes to meeting the lender’s needs because the bottom-line questions are always about affordability and how much of a risk you are. In other ways, it is a little bit more difficult because you may need to provide more evidence to reassure your potential lender. If you can meet the criteria though there is no reason, why you shouldn’t get a mortgage whether that is a standard one or a buy-to-let.

The reasoning behind the reluctance to lend is that being a director is considered inherently riskier than being a regular employee. If you are reading this, then the chances are that you are a director. For most, this means you will have had a period in your directorship where there were no dividends, or you had to take a reduced salary for a while. I suppose when you look at it that way you can see why the lenders see you as a slightly riskier proposition.

How do you convince a mortgage lender?

It will depend on the lender and, as with any mortgage application, things like an adverse credit rating and CCJs could be a problem, but as a rule, they will all want to see the usual documentation and some additional information:

Required documents include

• Proof of identity
• Proof of address and name confirmation
• Proof of income in the form of 3 payslips, your bank accounts and so on
• Your expenditure
• Proof of your deposit

On top of the above Directors will usually need

• Proof of your salary as a clear indication of how it was broken down in terms of dividends and your share of net profit after corporation taxes
• Business statements for 3 months, sometimes up to 6 months
• Your accounts often for 3 years
• Personal accounts
• Your end-of-year tax calculations (usually your SA302)

You can see from the list above that the lender is looking for proof of income and stable finances beyond the usual requirements for an employee.

How much can I borrow?

Again, this will depend on the lender and the best available deal. The majority of mortgages will be in the 85 – 90% LTV band but we have seen them go up to 95% LTV if you meet the right criteria.

How much you can borrow in relation to your income will depend on how the lender looks at your overall finances. It tends to vary depending on the criteria being applied but some lenders will look at the last year of trade. If you are a fairly new company then this can be a major advantage – also, in our experience, directors often tend to be more inclined to think about a new house after a good year! In other circumstances, lenders will look at an average of 3 years of trading. If you had a bad year in the mix this could be a much better option because the average could raise a bad year into something much more attractive over a period.

Another very important factor will be whether the lender will take your profit share into account for the purposes of deciding your mortgage offer. Some do and some don’t, but this can often lead to a very different mortgage deal.

All these factors will affect the likelihood of your mortgage being granted, how much they will offer and what the interest rate and LTV are likely to be. At the end of the day, it’s really important to go to an advisor who knows the market and has access to a wide range of lenders and options, so you get the best options.

Call us if you are thinking of applying for a mortgage and you are a director. It’s not as simple as other applications however, there are a lot of choices out there, so you need someone who knows the field to guide you through it.

Heading back to work – How will furlough affect mortgage applications?

Let me start this article by saying something important. To those of you who are currently worried about the future because you have done months of furlough and lockdowns, been in and out of the workplace and had to deal with everything the world has thrown at us recently, we understand. If, on top of everything else, you are currently asking yourself, ‘will I get a mortgage if I have been on furlough?’ don’t worry, I have some good news in this article. So, why not pause here, go make a cup of tea, then come back, and let’s look at the situation realistically.

Firstly, let me offer some reassurance. Despite the doom and gloom merchants’ predictions of furlough causing a massive problem for mortgages, it’s not as bad as it seems. The furlough situation has caused a hiccup; certainly, that much is true, but a mortgage decision is made based on many different factors, and being furloughed is just one of them.

How being furloughed affects the mortgage process.

There is one immutable guiding principle for how a mortgage application is assessed when it comes right down to it. As we said earlier, there are many factors involved, but basically, they are all working towards one simple end result. A mortgage is only offered to people who can afford it and are likely to continue to be able to afford it for the foreseeable future. The basic rule has not changed, and therefore being on furlough or having just come off is only a factor in that final decision. That said, it would be wrong to give the impression it will not affect your application or influence whether it will be approved. Naturally, it will be taken into account.

Being placed on furlough means that you may find it a little bit harder to get mortgage approval in some cases. However, if you have just returned to work, are back on your original employment contract/status, and prove income and suitability, then there is no reason why it will be a problem in most cases.

If you are still on furlough or recently come off it, though, it could affect your application in some of the following ways.

· Mortgage lenders will look to your income and outgoings. Right now, you may not seem as financially stable or have as much disposable income as in the past.

· You may need to get additional information from your employer with a confirmed return date.

· In some cases, people have had a change in their credit history due to reduced income. This could have resulted in a change in your income-to-debt ratio, which is a significant factor in an application.

· If you waited to apply (which is understandable in the circumstance, but time marches on), you will be a little older on your application.

· In recent months, the housing price boom may mean the property you want is a bit more expensive, and you may need to change your criteria for buying.

· You may find yourself with fewer options for lenders.

But… there are still mortgages available!

What it all means in a practical way.

The good news is that as long as you can afford it and are otherwise eligible, you should still get a mortgage. However, it will be more difficult in some cases, so we suggest the following.

· Talk to us as soon as possible. Don’t worry if you are still furloughed or unsure what is happening with your job going forward, let us start to help you now so that we can get the ball rolling.

· Bring things up to date. If there are fewer options available, then you need to know where you stand. That means the information you have been working on so far could be out of date, so you need to see your current situation.

· Widen your search criteria. The market has changed dramatically in the last year, so you may well need to adapt your expectations on how much you can borrow and what sort of property you can afford.

· Be aware that if you are self-employed, it will probably be a little more difficult. To be clear, I am not saying you will not get a mortgage because if you meet the criteria, then you will. However, it was always slightly harder for self-employed applicants, and with an unsettled year of trading on the balance sheet, it’s not going to be any easier. You will need help and advice to make sure your application reflects an accurate picture of your suitability, so you apply with the optimum potential for being accepted and to a lender who is sympathetic to self-employed applicants.

· Reduce your credit card and other debts as much as you can. In the end it is all going to come down to how much you can afford to pay for your mortgage. The lower your debt, the more you will be able to demonstrate your affordability.

At the end of the day, yes, of course, being on furlough will have an effect. It will potentially change the mortgage options available to you, and it may even mean that you are better to wait a short period before you apply, but it doesn’t mean you will not get a mortgage.

Get in touch to explore your options.

We have been involved with mortgages and the wider property arena for quite some time now and we are always looking for ways to use our experience to predict the way things roll out for our clients. It is about this time of the year that we like to look back over the previous period and highlight the things that will impact the coming year. That said, looking back over the years to predict forward is not always easy. For example, some years just fly by without any real impact or anything unusual happening. When it comes to last year, however, it was probably as far from lacking impact in just about every way possible. One of the few things that we can be certain about after the wild ride with the pandemic in 2020, is that it has changed the way buyers will look at what makes a good home. For the short term at least, we all probably have a few different criteria in mind.

Many more houses are now suddenly a workspace and a living space.

This is certainly going to be a big factor in the requirements for potential buyers. Let me give you an anecdotal example of why. I was recently standing in a queue and two people were having quite a loud discussion over the social distance requirements. The topic under discussion was that both were thinking about moving home and one person was explaining they were looking for a three-bedroom house with a reasonably sized spare room. Not because of wanting more children or catering to guests, as would normally be the case, but because she was now working from home for part of the week and wanted to get off the kitchen table.

She is far from alone in this. A quick glance at the Office for National Statistics’ website will tell you that in April 2020 around 46% of people did some work from home. Clearly, a large percentage of this was prompted by Covid-19 safety, but even after accounting for that, the numbers are expected to remain high. It would stand to reason that either having (or the potential to have) a comfortable office area that could be pressed into service, if need be, is going to be a major selling point. As far as mortgages are concerned, that could mean an increase in the target price you are aiming for, perhaps a little location jiggling or another compromise to get the space you need at your current budget.

The market in 2020 was unusual but that doesn’t mean property itself is less reliable.

No matter what else happens there is always going to be real financial sense in buying property. People will still want to get on the property ladder and people will still want to move. A solid investment in either a personal property or a buy to let dwelling is going to be a safe, reliable and ultimately a very stable investment. It would take a major shift in the fabric of our society to change that and consumers and lenders all know this. So, with due respect to the doom and gloom merchants who are predicting a falling market, we say ‘Yes, maybe, but falling does not mean collapsed or static’. If the market does slowdown in 2021, and it may for a short period, it doesn’t alter how reliable a house purchase is as an investment.

Garden space or local green areas are suddenly more of a selling point.

Partially because as soon as spring rolls around and the lockdown eases we are all going to want to get out in the fresh air again as soon as possible. Also, there is a real feeling of awareness of the need for outdoor exercise. A sort of zeitgeist focused on fresh air. Couple that with an increase in working from home and it makes sense that gardens and local green areas such as nature reserves, inner-city parks and walks are going to be worth making a little more off to buyers. Sellers could do well to mention a more outdoor-focused quality of life about their homes.

Electric cars and connected worlds are becoming more important to many, but the opposite could be true for some buyers.

The recent decision to ban the production of diesel cars and the current aversion to public transport could well resonate with buyers. As electric and hybrid vehicles become more popular, the need to charge them will become important to home buyers. Good broadband and connectivity are clearly important to the remote worker. Conversely, while the distance to work is always a factor for those buyers who are still office based, the exodus from city life shows no signs of slowing down. The ‘place in the country’ or at least in a convenient out of town location where you can switch off from tech and stress, could be a big motivational factor after a difficult year.

Interestingly, despite the regular downbeat predictions from last year, mortgage approvals are at the highest level for well over a decade. While retaining a note of caution because of the upheaval of 2020, I think we can say that the future for the mortgage and property space is perhaps more turbulent than usual – but it seems pretty vibrant and active, nonetheless.

Whether you are taking your first steps towards getting a foot on the property ladder, buying a bigger place for your growing family or investing in property, being armed with the right information is essential to your journey. As we demystify the world of mortgages, we would like to offer our services for a free consultation – get in touch with us today!

After the events of 2020, I suspect many people will be a little careful about predicting the landscape of the property market and mortgage lending in 2021. However, while there is probably a little more caution in this blog than there would have been last year, it is far from impossible to make at least a few reasoned assumptions. 2020 may well have been unstable, unsettling and unusual, but the fundamentals of the property world have not changed. As a concession to the fact that next year may still suffer from the fall out of the pandemic, clearly you should remember that contents of this blog will need revision if anything new happens. That is always true when writing about potential changes to the property market though. So, let’s plunge in, cut through the drama, and look at what is likely to happen.

The more things change – the more they stay the same

Undoubtedly one of the most attractive things about property is that it is a solid, reliable, element in our lives. The bottom line is still that houses rarely fall in value. The cost of the house may change but it’s value, how much is actually worth, usually rises. Even when it doesn’t rise, it most commonly maintains value. Even when the house prices dip, it simply becomes a waiting game until they rise again. Looking at 2021, there is no reason to assume that buying property will be less attractive in the long run. The stamp duty factor (see the next point) may well cause a seeming drop in prices mid-year just as it is currently causing a rise but, as history tells us, these things even out.

In short, the reasons for taking a mortgage and buying property have not changed. The investment it represents, the home it provides, the secondary income it generates and the long-term common sense of buying, still all remain the same. The answer to the question: ‘Is it still worth considering buying a house?’ is likely to be as emphatic a yes, as it always was.

What about stamp duty changes?

Well, that one was a bit of a shake up frankly. Everyone in the housing market was running to keep up for a while there. Just for clarity, in a nutshell what happened was that the Chancellor cut stamp duty earlier this year. As a result, some sellers, mostly in the mid-range market, found themselves able to save money on a sale. This caused a jump in the selling market as people looked to move before April 2021 when the scheme ends.

The side effect has been that some house prices have risen. The Land Registry, which monitors the sale of houses, is telling us that there has been a 5.8% annual rise in average price. Mortgage lenders are reporting similar figures, and everyone agrees that this has been at least partly driven by the change to stamp duty and the restarting of the house sales after the initial lockdown.

So, what does that mean for the market over next year? Well, assuming the stamp duty cut stops as expected in April, then we could see a stabilising of the cost or even a drop in the overall price of property. This may well cause a few over dramatic headlines in the tabloids,

but it needs to be out into perspective. Mortgages must be offered; houses must be sold, and investments must still be made. More to the point, we know this is coming which means that the lenders and the industry in general will be ready for it. So, will it have an impact? Yes, probably. Will that impact be as bad as in the previous situations where the market was unsteady? No, probably not. It balances out. If sale prices drop then getting a mortgage could be easier for first time buyers for example. Few of the people who have moved during the stamp duty cut will want to move again a few months later. Sensibly then, once the remnants of the houses unsold pre-April filter through the system, it will all stabilise again.

Will mortgages be harder to obtain?

Maybe for some, but not for most. Again, this is relative to the market situation balancing. If you are in full time employment, have a suitable deposit, look to buy a sensible property and you can afford the repayments, then you should still get a mortgage. It is reasonable to expect that the lenders will be a little more cautious for a few months, but this should resolve as the economy and fall out from Covid both settle down. At the moment the interest rate is very low, and this is lowering the repayment rates. This will almost certainly change, but it is unlikely to shoot up overnight.

A very important factor in the availability of lending will almost certainly be the government response to the need for more housing. They recently committed to the creation of large numbers of new houses and various schemes are available to help those who need it. Whether rented or purchased through a mortgage, the housing market must grow in response to the need for additional housing.

So, in terms of the overall population, it may seem more difficult for people to obtain mortgages, at an individual level however, the criteria are unlikely to change much. Mortgage offers are always based in the ability of the person taking them to afford the repayments. If you can afford one, then you will get one. If you cannot afford one, then you need to reconsider your options. Nothing new there.

In an article like this, it is impossible to consider every aspect of a rapidly developing market, so the above are our thoughts based on the current situation. It can, and in the current climate, probably will change. That may mean that 2021 is a softer growth year but for property, one year is a short time.

The best advice for the coming year is that if you are considering buying a property, do it with an informed advisor as your partner. 2021 may still be rather unstable and that means it is more important than ever to get the right advice. With an experience professional helping you get the lending you need you will be able to make the right choices.

Call us if you need help, it’s what we are here for.