Mrs Rodgers has only been self-employed for six months and has a contract with her previous employer for 12 months. Projected earnings for her first 12 months of trading are £20,000. They want to consolidate £20,000 of credit card borrowing. To do so they need to borrow £205,000 at 80% LTV. What are the options available to them?
Delia says: There are a number of deals available for self-employed borrowers. To help the Rodgers we have Gordon Covell of Bankhall and Gordon Bowden at Scottish Widows Bank Have you got a problem for Delia? Email email@example.com
Gordon Covell is managing director of Bankhall
Self-employed people used to have fairly limited options when looking for a mortgage, but as lending has become more sophisticated and flexible, a far wider range of deals are now available with increasingly competitive rates and terms.
Despite the fact that this market has received some adverse publicity in the popular press over the past year or so, new and interesting products continue to be developed. Although the Rodgers' have unusual circumstances, most brokers would now be confident of being able to find them an attractive deal.
A fee-free remortgage product seems the best route for the couple to take. While there are many available in the marketplace, their choice is a little more limited than the typical self-employed borrower (if there is such a thing) because they require a tracker product and also because Mrs Rodgers has only been self-employed for six months.
The debt consolidation element must also be taken into account when 80% LTV is required.
But there is still a decent degree of choice available to them. A tracker product probably meets their requirements better that any other, although there are still some two-year fixed deals available at 4.99% with no overhang, if Mr and Mrs Rodgers prefer more protection against interest rates rising again. If they are cautious borrowers, then this may be more appealing but a tracker would probably be better value if they feel comfortable with potential fluctuations in payments.
Provided that Mr Rodgers can provide his self-assessment returns for a minimum of two years together with bank statements to support his declared income, most lenders will consider lending to the couple.
Because Mrs Rodgers has not been trading for 12 months her income will have to be treated with caution. I believe that as much flexibility as possible should be made available to the couple to negate the necessity of relying on Mrs Rodgers' income.
Whilst most mortgage brokers would simply consider a self-certification product for clients in a situation such as this, I feel it is more important that the clients can justify their ability to meet the monthly commitment. This can be done through an affordability check.
Scottish Widows Bank's I-loan facility is available exclusively to Bankhall's members and would be ideal for the Rodgers' circumstances.
We are allowed to certify income including debt consolidation up to £20,000. Because this product has no set-up costs and can be both flexible and offer an offset facility, I think it is perfect for the self-employed, particularly those in similar circumstances to Mr and Mrs Rodgers.
Gordon Bowden is business development director at Scottish Widows Bank The key to a case such as this is that Mr Rodgers is the main earner and has a proven earnings record since he became self-employed.
On the other hand, Mrs Rodgers has been self-employed for only six months and while this does pose a problem, it is beneficial that she has secured a 12-month contract with her previous employers. This demonstrates a degree of continuity although normally we would prefer to see someone in her position having a longer record.
Under normal circumstances, Scottish Widows Bank would request a reference from Mr Rodgers' accountant confirming his income and a projection from Mrs Rodger's accountant backed up by sight of the contract which is in place with her current employer.
By obtaining these, we could look at an income multiplier of 3.5 x Mr Rodger's income (£192,500) and Mrs Rodgers projected income of £20,000. As mentioned earlier, it is possible to consider this case as Mr Rodgers is the main earner.
As they have to borrow £205,000 to remortgage and raise sufficient capital to clear their credit card debts, we might also be able to consider a small mortgage reserve account (a revolving credit facility that sits along side their main mortgage) of £7,500.
This would take their total borrowing to £212,500 and fit in with the agreed multiplier. This would give additional scope to fund working capital requirements in the short-term.
We would consider lending up to 80% LTV although all normal background checks via credit reference agencies and so on would still be required.
Situations such as the one the Rodgers find themselves in are increasingly common as working patterns change. Fortunately for self-employed borrowers, lenders are increasingly able and willing to offer flexible deals at competitive rates. Being self-employed no longer means having to get an overpriced mortgage. Brokers are also better educated in this area and can talk through all the available options with their clients.