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Desperately seeking a financial wizard/accountant/bookkeeper to help me prepare for my first re mortgage to release equity for a self build / BTL strategy

 

I have a salary of £26k incl overtime, plus around £20k of self employed + rental income (commercial property sub lets, lodger and parking)

I've been doing my own tax returns for years and as I'm so conditioned into maxing my expenses to pay as little tax as possible, I feel it would be wise to employ a suitable wizard with a sound understanding of the current requirements of lenders to give me the best outcome.  I need to be sure what types of income, (specific to my circumstances) will be considered valid by potential lenders so I can submit 1 tax return at the end of jan, and the next at the start of April and satisfy the 2 years requirement for self employed

 

My current mortgage is guarantored and expires in April 2016, I would like to get this going beforehand however and am not tied into a mortgage deal, on the SVR currently

 

I'd like to keep my flat to let, and use the as much of the 400k ish equity to self build, and possibly to buy a cheap ish BTL also if possible

 

Can anyone kindly make a recommendation?

 

Many thanks!

 

Mike

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I think you may need two wizards Mike, one to manage your accounts/tax returns and one to give you the knowledge on how to appeal to lenders.

To be clear, you currently live in the flat you own but intend to rent it out, live somewhere else, then refinance to release equity to be used to further your property career?

 

You may be competent to manage your own tax returns and most accountants are also conditioned to do as you have done, max out your expenses to minimise your tax liability. This is all well and good until you decide you want a mortgage, then it bites you in the bum. if you do want some professional help, I gave some property minded accountants in this thread 'I need a new accountant - any referrals'

 

Are you seeking to make yourself attractive to a main res lender or a BTL lender; as the criteria is very different?

 

Main res lenders now focus on how you spend what you earn, not a multiple of your income. So they will analyse your spending to determine how much they will lend.

 

BTL lenders will just want to see that your earnings that are unrelated to renting property are £25k pa or greater. As your salaried earnings appear to do this, all BTL lenders would be available to you. How much you could borrow would then be deemed by the rental income your flat would generate, as assessed by the lenders surveyor. Currently BTL lenders, influenced by the FCA, are just beginning a process of ratcheting up the rent:mortgage ratios in a stress testing exercise; result will be that you will be able to borrow less for a given rental income in future than you have been able to borrow in the past.
 

Income Eligibility

it would be helpful if all lenders had identical view on what income they consider valid; unfortunately they don't, there is some common ground but lenders vary as to what they will and wont accept

  • Basic salary from employment...universally accepted by all lenders
  • Bonuses from employment...some lenders ignore these if they are not guaranteed as part of your contract of employment; others will accept if recent P60's show a consistency of bonus payments
  • Self employed income...standard income figure used by almost all lenders is your net profit figure. They increasingly want to see HMRC tax receipts (SA302) for last 2 years to  prove s/e earnings in addition to your accounts. Some lenders take the current years net profit, others take average of last 2 years. Declining profits are viewed very dimly
  • Not all self employed income is valid...lenders often refuse to allow any income derived from property rental. A few will allow it if it is derived from an unencumbered property you own
  • Lodger income...not universally accepted as valid income, it is on a lender by lender basis. Invalid if you will be renting out your flat as you will cease to have a lodger
  • Parking income...again on a lender by lender basis

The likely outcome is that most of your self employed income will be deemed invalid Mike. For a BTL mortgage, it may not make much difference anyway as you meet the £25k income threshold. A good mortgage broker can informally discuss with different lenders to see which one would be most suitable for you.

 

One other point, if you are moving out of your current main res and letting it, where you intend to live will be a determining factor in which lenders will give you a BTL mortgage. Some lenders will only lend if you are buying a new main res, possibly insisting that both transactions complete on the same day. if you a renting your new place to live that will reduce the availability of lenders to you.

Kevin Wright

Positive Property Finance

Telephone: 01206 586586

Email: inspireme@thinkpositively.co.uk

Brokerage website: www.positivepropertyfinance.co.uk

Workshop website: www.ninjainvestorprogramme.co.uk

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Many thanks Kevin for a very thorough response!

 

I've read your other post and having emailed them along with some other recommendations from friends and expect to be talking with them today or tomorrow.

 

In answer to your question, it's my main residence I'm seeking to re finance, in order to invest the equity into a self build, ideally keeping ownership of this main residence during the build process (1.5 years estimate), and living there until I can move to the new property I've built and live there as my main residence (hence avoiding CG Tax), then renting my previous residence as a BTL. So I am kind of buying a new main residence, only I'm going to build it myself..

 

I guess this makes me a 'main res' borrower as it's finance on my main residence I'm seeking, in which case I may not have enough of the right income, so perhaps I need a new strategy?

 

Sounds like a good broker and accountant team could potentially navigate the lenders requirements and me a deal

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Mitigating CGT by using properties as your main residence is a sound principle Mike. However CGT is payable on the disposal of an asset; if you are going to live in your new build and rent out your current main res, there will be no short term asset disposal to trigger a CGT chargeable event.

 

It would appear that trying to refinance your current property to leave rage as much of the £400k equity out to finance your new build will not succeed as lenders would judge you to have insufficient provable income of the right type to facilitate a mortgage large enough to achieve your aim.

 

The alternative strategy would be to rent out your property, refinance with a BTL mortgage thus releasing greater equity to fund your new build. There are specific lenders that will lend on a self build mortgage, provided they can satisfy themselves that you are genuinely building it to live in and not developing it to sell on in a back door underhand way. Again your borrowing capability will be restricted by your provable, acceptable income.

Kevin Wright

Positive Property Finance

Telephone: 01206 586586

Email: inspireme@thinkpositively.co.uk

Brokerage website: www.positivepropertyfinance.co.uk

Workshop website: www.ninjainvestorprogramme.co.uk

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