Dear Delia

My client is employed in his family gardening business on a basic salary of £25000 but he has recently gone part-time to build his own garden design business. He now only gets £15000 from the family business but he has made £20000 from his own business which was set up 12 months ago. He would like to buy his first property and has a £30000 inheritance he wants to put toward a £145000 flat he has found. What are his options?

Delia says: There are a number of routes your client could take including self-cert. Here to help are Rob Clifford of mortgageforce and Emma Paine of Mortgage Express.

Have you got a problem for Delia? Email mortgage.strategy@centaur.co.uk

Intermediary Response
Rob Clifford is chief executive of mortgageforce

Nowadays more and more buyers have circumstances that resemble your client’s rather than the traditional single job, sole income applicant. Taking into account an additional income is now commonplace, not least due to first-time buyer affordability challenges.

Your client appears to be doing well in his self- employment and most sensible lenders will regard this as persuasive when assessing his mortgage needs. An adviser would need to establish some additional details such as whether the property in question is a leasehold flat, whether it has at least 70 years remaining on its lease and that the flat is not above retail premises.

Let’s assume the client has a clean credit file, no outstanding debts and that he is over 21. While he has 30,000 available as a deposit, he could use 25,000 as a deposit, leaving 5,000 available for Stamp Duty, legal fees, mortgage application fees and removal costs.

A number of lenders will make self-cert available to your client even though he has only been trading for 12 months. He could aggregate his employed and self-employed income as some lenders will take 100% of the salaried income into consideration as well as his self-employed earnings. GMAC-RFC would normally permit an applicant such as this to utilise both his incomes, in this case 35,000. An income multiplier of 4 x income gives him the ability to support the loan he seeks. But GMAC-RFC wouldexpectsome form of active credit on their credit file asyour client is a first-time buyer. Some lenders will confirm income through a telephone call to his accountant. If your client has no accountant the lender might be prepared to use Inland Revenue assessment documents instead. GMAC RFC could provide either a fixed rate or a discounted rate of 5.25% until January 1 2008, depending on your client’s mortgage preference.

Freedom Lending could also provide your client with the loan required. This is principally due to its affordability calculator which often allows a client with little or no debt to borrow more than the standard income multiples applied by most lenders. Freedom only requires a client to have been trading for 12 months and your client could probably proceed either on full status or self-cert.

Freedom is likely to take 50% of the client’s second income into account on a full status basis but due to its affordability calculations he should still be able to get a mortgage of 123,000. Freedom offers no fixed rates but has competitive discounted rates, such as a three-year tracker at 4.98%.

Lender ResponseEmma Paine is product development manager at Mortgage Express

Your client has a number of things to consider, especially as he is a first-time buyer. He will have to pay Stamp Duty at 1%. He will also have legal fees, including fees for searches, plus lenders’ fees including a completion charge and a valuation fee.

This all adds up to a considerable amount of money for somebody buying a property for the first time. These initial costs are easily overlooked and often leave first-time buyers with less money to work with than they thought they had at the start.

Your client should set aside around 5,000 to cover these costs so there are no nasty surprises for him down the line. So, in total, he should budget for around 150,000 to cover all costs associated with the purchase of his first home. If he uses the inheritance of 30,000 as a deposit, he should be looking for a mortgage of 120,000.

Most lenders will consider lending your client 3.5 x his income, which will include what he earns from the family business and his own business. Lenders will base the loan size on affordability and ask for a minimum level of income. But your client’s main problem is that he cannot provide three years’ accounts for his garden design business as it has only be running for 12 months, which will put him outside the criteria for most ordinary mortgages.

His best option would be to consider a self-cert mortgage, which is fast becoming a mainstream option and is no longer a costly product in most cases. For example, Bank of Scotland has a fixed rate of only 4.79% for two years. The downside is that this is only available up to 75% LTV. Rates for LTVs up to 85% start at around 5.09% for a two-year fixed rate or 5.24% for a two-year discount. Most self-cert lenders will lend up to around 4 x income. Some lenders will calculate the loan size based on net monthly income.

As your client needs an LTV of 83% and an income multiple of just above 3.5 he should consider lenders that will lend 4 x income above 75% LTV. But he should be aware that he may well have to pay a premium for this.

In summary, with a large number of products available that have been designed for precisely this kind of situation, there is no reason your client should not be able to find a competitively priced self-cert mortgage to enable him to buy his first home. But he needs to get advice from a qualified financial adviser to ensure he gets the best deal to suit his circumstances.