Mortgage for self-employed first time buyer

CONTACT JAMES

THE SCENARIO

I recently assisted a client who had just converted from a Pay as You Earn (PAYE) salary to a sole trader status and only had 20 months of self employed trading history. She was looking to purchase her very first home with a small deposit of just 10%. My client had very little trading history and gaining a secured loan for a self-employed applicant at 90% Loan to Value (LTV) can be relatively problematic. This complication was accompanied by a very small net profit in the 2014/15 tax year and a car finance agreement with 4 years remaining.

However, after the 2015/2016 tax year had finished my client posted a net profit figure of over 10 times greater than the previous. I initially approached a number of high street banks but unfortunately they would only take an average of the last 2 years’ tax returns and this in turn meant that the the loan available would fall short of the required amount.

OUR SOLUTION

With the news of this my approach had to be altered. I took my clients case to a lender who would cast a light view upon the first year’s sole trader income then base a lending multiple upon the latest year’s net profit figure. I explained to the lender in question that the low income in 2014/2015 was due to the start-up costs of her business and that these were then taken away as an expense on her first tax return. In turn they were able to take the observation that her 2015/2016 net profits would be sustainable for future years and could provide a loan up to the desired amount.

I was able to secure a 2 year fixed rate at 3.49% over a 35-year term on capital interest and repayment. This was a great result for my client, which allowed her to finally purchase her very first home.