Victims of success
Paradoxically, a poorly paid clerk may find it easier to get a mortgage than a successful entrepreneur. But there are ways round the problem. Tim Weekes reports
Wednesday 12 March 1997
Think again. Most lenders feel secure lending to a company employee. They have to do little more than get a reference from the company, look at the employee's salary, and then multiply it to tell them how much they can lend to that person.
They tend to treat the self-employed rather differently. The Halifax is typical. A spokeswoman says that it would normally require three years' sets of audited accounts from a self-employed person. That, of course, immediately excludes the entrepreneur whose business is only 18 months old.
Failing that, the Halifax will try to make an assessment based on other evidence, especially if the applicant is an existing borrower or saver. But building societies and banks still bear the scars of their easy-going lending in the mid-Eighties. They remember the self-employed borrowers they had then, some of whom went out of business and defaulted in the recession of the late Eighties. It has made them wary of lending to people running their own businesses.
In fact, even if you have three years of accounts, your problems do not necessarily stop there. An approach to a high-street lender can be complicated by the form of those accounts.
Michael Bell, of the Kings Lynn accountants Wheeler & Co, cites an example in which, for tax purposes, a business proprietor paid himself a very small salary - but took a large amount out of the business in the form of dividends. A building society he approached refused to consider anything but the salary as long-term, continuing income, and he was refused a mortgage.
But, as Mr Bell points out: "You cannot have one set of accounts for the Revenue and another for the mortgage lender." He says that the staff at building society branches are seldom qualified to make a judgement on the financial affairs of the self-employed. "Looking at a P60 and a current payslip provided by an employee's company is far simpler for them to assess. I feel sure clients of mine have been refused a mortgage simply because the building society did not understand the accounts," he adds.
The Halifax insists that this should not be the case. It says it employs specialist backroom staff at its branches, who are trained to assess mortgage applications. But Mr Bell feels that a self-employed person should in any case consider approaching a lender through their accountant. "An application needs presenting in the right way," he says. "An accountant can explain exactly what is income and what isn't."
There is, however, another way round the problem of applying for a mortgage. Brian Skeet, an independent financial adviser at Cityview Financial Services, says that a few mortgage companies are beginning to specialise in lending to the self-employed. They are not well known to the public, however, and you will not find them on the high street. One is UCB Home Loans, a subsidiary of the Nationwide. The managing director, Mike Lazenby, says that UCB does not rely solely on accounts: "What you see on the balance sheet is not necessarily what is happening in the business. Accounts are often drawn up to appease the Inland Revenue, not to impress the bank manager," he says.
Instead, UCB offers what it calls a "bespoke" service to the self-employed. Its specialists spend time analysing a self-employed person's business, including their forecasts, their cash flows and their strengths as managers. Analysis of the accounts comes right at the end of that process. As Mr Lazenby says, a set of accounts can tell you only what the business did last year or the year before; it is no guide to the future.
There is, however, a price to pay, and that comes in the form of a mortgage interest rate 0.5-1.0 per cent higher than the standard variable rate. This means, of course, that if you think you match the criteria of the high-street lenders, you should consider using them.
In the past, the self-employed have also tended to produce accounts showing artificially high business expenses, and correspondingly lower profits.
This is because the Inland Revenue used to give taxpayers some latitude in estimating business expenses such as car mileage and a spouse's salary. Mortgage lenders who failed to examine the accounts closely would not detect that this failed to show a real picture of the business's income.
Under self-assessment that at least should be less of a problem, because the Revenue is going to demand detailed logs of regular business expenditure. Although self-assessment is in its early stages, the belief among accountants is that accounts presented to the Revenue are likely to be more realistic than in the past. Whether they are any better understood by the building societies is an entirely different matter
Emergency call 'started off dumb, but got pretty serious'
Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'
Thought you'd seen it all after the Jeremy Paxman interview?
Greatest mystery about the hit BBC1 show is how it continues to be made at all, writes Grace Dent
"History is violent," says the US Army tank commander Don "Wardaddy" Collier
17 October 2014 07:08 PM
Going down the wrong road: parking fines are nudging people into debt difficulties
17 October 2014 07:58 PM
Stacks of income: Drax is among the companies in Neil Woodford’s portfolio that he believes will pay strong dividends
17 October 2014 07:23 PM
Don't panic, it’s a wise idea to check investments regularly to ensure they are on target for your hoped-for returns
17 October 2014 08:18 PM
With little or no wage growth being seen in the UK, increasing house-price inflation could see the number of first-time buyers slide further, unless there’s a new accelerated house building programme
17 October 2014 07:19 PM
You should ignore the headline offers and trickery and work out the total cost of borrowing under different deals
17 October 2014 07:24 PM
Denise Leigh, who appeared in a production of Rigoletto with Alan Opie, was left without an essential service
10 October 2014 06:13 PM
A charity has calculated the cost to us all of unmanageable debt – from lost productivity to the extra demands on the NHS
10 October 2014 06:36 PM
The regulators are at last tackling the high-profile payday lenders, but they appear to be ignoring the growing problem of internet loan firms
10 October 2014 06:35 PM
As the cold weather hits, the question of soaring bills will be felt by each of us at home
10 October 2014 06:55 PM
Nikki Galloway (above) sells jewellery via her own website as well as on Facebook, Amazon and Bouf
10 October 2014 07:17 PM
Queenstown on Lake Wakatipu in New Zealand. The country’s stock market was boosted last month on John Key’s re-election
10 October 2014 07:29 PM
Royal Mail is cutting its small parcel charges from 20 October
03 October 2014 07:08 PM
Anyone who moved to countries including Australia, Canada, South Africa and a 100 other places, have had their pensions frozen at the rate it was paid at when they left the country
03 October 2014 06:52 PM
Every fund has good years and bad, but consistent underperformance over a number of years points to something more fundamental
03 October 2014 07:38 PM
Nick Train thinks luxury fashion brand Burberry is one of the companies that has prospered in digital marketing
Mark Dampier: Woodford’s young companies could be the stars of the future
You'll need £220,000 for a minimum wage in your retirement
Questions of Cash: Something rotten in the cellar causes trouble up above
Weekly Money: round-up of the personal finance stories you may have missed 20-24 October
Bank-beating exchange rates on your international payments
- 1 This 'woman calls police to order pizza' story isn't going where you're expecting
- 2 Axe wielding man shot dead after attacking four New York policemen on busy street
- 3 Watch what happened when food critics were unknowingly served McDonald's
- 4 Jimmy Carr's Oscar Pistorius joke goes a bit too far at the Q Awards
- 5 Ottawa shootings: Bruce MacKinnon's cartoon is the perfect tribute to soldier Nathan Cirillo
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Residents should throw a street party and mix with immigrant neighbours, councils told
Attacks on 'Ukip Calypso' show how skewed people’s priorities are
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village