Limited company vs sole trader, Clinical, financial advice
WARNING: Securing a new mortgage has just become more difficult
Chris Broome, Opus Financial Solutions
Since the global credit crash of 2008 we have been contacted by many locums who have informed us of their frustration and disappointment after being offered reduced borrowing when applying for a new mortgage. We have also been contacted by a large number who have been turned down for finance altogether.
The common reason for these application declines is that most lenders do not understand the way locums work, or the way they are paid, resulting in the lender deeming the locum too ‘high risk’ to lend to.
Unfortunately this situation has not improved. On 26th April 2014 a comprehensive review of the UK’s mortgage market took place, called the Mortgage Market Review (MMR). The result of this review has led to some key fundamental changes to how mortgage lenders access applications, including lenders now having to follow an even stricter set of affordability rules which will force consumers to seek out the support of a qualified mortgage adviser.
Below is a list of things you need to prepare before you engage with an adviser:
You’ll need proof of income
Gone are the days of securing a mortgage with no proof of income. Lenders must now see evidence of your earnings, through sight of bank statements, pay-slips or company accounts (if self-employed).
Lenders will look at your bank statements to assess your outgoings, whilst also looking out for unusual spending habits. Therefore before you decide to secure a new mortgage take a look at your spending habits and if required make some alterations.
Can you afford the mortgage at 7%?
Part of a lenders affordability stress test is to work out if you can afford the mortgage if interest rates shoot up to 7-8%. Part of this assessment is to understand what you spend your disposable income on – things such as Sky TV, or gym memberships.
It may seem a little excessive but the lender is just trying to work out if an interest rate rise will send your disposable income into a negative figure - if so you could be declined for the loan.
Apply at the right time
Before you apply for a new loan think about what is happening in your life. A prime example of this is financial dependants. Lenders reduce your affordability if you have children, therefore if you’re about to start a family it might be wise to secure the new loan beforehand, to increase the chances of you being accepted.
Lenders’ interviews may now take between 2 to 4 hours!
If you apply directly to a lender you are likely to spend between 2 and 4 hours on the telephone being interviewed! This is neither a joke, nor us scaremongering you. This is because they have an increased due diligence process to go through.
Working alongside a mortgage adviser reduces this time. You will still be asked the same questions but it will take a lot less time to process.
Interest rates are rising
A handful of lenders have increased their interest rates to scare off new applications – in an attempt to buy some breathing space to adapt to the new mortgage rules.
It also might be sensible to secure a new low fixed rate now before more lenders follow suit or/and the Bank of England decides to increase their base rate.
Application pre-check list
These are the things for you to check before you apply for a new mortgage:
- Provable income – bank statements, pay-slips, company accounts.
- Check your credit file – are there any errors on there? If so they will need removing.
- Make sure you are on the electoral roll.
- Ensure your address is correct on all active accounts.
- ALWAYS pay your bills on time.
If you work as a locum, and are struggling to obtain a new mortgage, all is not lost. There are still lenders in the UK market that are understanding of your situation, and will access your application based on its own merits.
Our team of in-house mortgage experts are here to assist you no matter what your enquiry. Please contact us if you would like help securing a new mortgage or re-mortgage.
Chris Broome is a director of Opus Financial Solutions Ltd, the financial advice division of The Opus Group.
M: 07793 841654
E: chris@opusfs.co.uk
