Mortgage and Self Employed accountability

[Kingdom35]

Hi All

Thought id ask to see if anyone is in the same boat.

I currently have a side business, registered and tax return forms returned every year. This is our second year trading.

My question is regarding mortgage and borrowing.

Heres a hypothetical scenario I would like some advise on

Year 1 - Profit £1k.
Year 2 Profit is looking like £5k.

I have a full time job as does my partner. Combined we bring in £40k.

We want to move up the ladder, so my question is. With the side business, how much extra borrowing will this allow us? Is it based on the Revenue or Profit of the Business? I'm assuming Profit.

With roughly 4.5/5 times combined wages I worked out our last mortgage was based on. Would it be a simple 6k divided by 2 - £3k x 4.5/5 = £13.5-15k extra we could borrow with the side business calculated in?

I believe the last time I spoke to the mortgage adviser at Natwest they mentioned 2 years of trading is needed. I know the simplest way to find the answer is to ask Natwest, but id like to hear peoples input and experience before I give him a call

Many Thanks in Advance

[worsy]

Best posting this in Finance and asking Sarnee for his opinion.

[TooMany2cvs]

Just one year's accounts, with a grand profit?
I doubt they'll take it into account. If they do, it'll not make much difference at all.

[Dr Interceptor]

Sounds more like a hobby than a business, I don't think it will be taken into account, especially with only one years worth of accounts.

[Nickp82]

My partner is self employed, SA302s were required for proof of her income when we went through the mortgage process and the lending was based on this (and my salary of course).

[Audemars]

It will unlikely be factored in.

Are you sure lenders lend 5 times combined salary nowadays? 3.5 x is the max normally. Would need a low LTV for 5x.

Edited by Audemars on Thursday 7th December 10:55

[triathlonstu]

Audemars said:

It will unlikely be factored in.

Are you sure lenders lend 5 times combined salary nowadays? 3.5 x is the max normally.

Up north it's certainly closer to 5 than 3.5, otherwise I'd be in a tent.

[Kingdom35]

Had a look on the Natwest website....its calculating 4.8 x our combined wages

Added in an example of £5k extra income, sure enough the additional borrowing was £5k x 4.8.

The only question is, is it based on Gross or Net...im assuming it follows the Gross path like wages would.

Hopefully anyway, that would be ideal.

[Sarnie]

Income is income, so it can be used, no matter how small it is.

As long as you can satisfy the lenders criteria Eg two years HMRC documents (Tax calculations plus tax overview forms).

If you are a sole trader, lending is based on net profit not gross profit.

Most lenders will want 2 years figures and average it out.

A few lenders will lend against the latest years figures alone which is handy if there is a sharp spike and the average figure is not getting us to where we need to get to.

And not all lenders will lend at 100% of your figures as it's a second job....they may lend against 100% of your main income but then 50% of your second income......varies from lender to lender.

[Kingdom35]

Thanks Sarnie..that makes perfect sense.

I have 3yrs left on our current mortgage but I want to try and upside before then and my side business is improving year on year so far.

I think I will speak to Natwest also.
Give them this example and see what they say. It can help me see what I need to achieve in Year 3 perhaps if I cant now.