Cover
based Prolific Mortgage Finance, says that having been urged by their accountants for years to do everything they can to get their taxable profits as low as possible to avoid crippling tax bills, the self-employed are finding now their taxable profits are the figures being used by lenders to establish exactly what they can afford to borrow. And that is now bringing them up short in terms of borrowing potential. “Even accountants’ references are simply not good enough for many lenders now,” he says. “With hotlines direct to the
HMRC, lenders are taking a much stronger stance on the borrowing capacity of the self-employed and rightly so. But this has affected their ability to borrow more or in many instances even the same as they were borrowing two to three years ago, preventing many of them from moving.” He’s not the only broker finding this. John Phillips, financial services director at London-based estate agent Kinleigh Folkard & Hayward, agrees. “Too many people now no longer fit the
WHAT THE GOVERNMENT IS DOING
• In March 2011 the FirstBuy scheme was announced making £250m available over the next two years to help an estimated 10,000 first-time buyers in England buy new build properties. Borrowers must find a 5% deposit, will receive a 75% LTV traditional mortgage, a 10% equity loan from the government interest-free for the first five years, and a 10% equity loan from the house builder on the same terms. Borrowers repay 20% of the value of the property on sale, meaning they give up part of any uplift in equity value in the property though the government and builder loses partl is the property value falls significantly. The scheme is open to those with a household income of less than £60,000 a year who can put down a 5% deposit. In London, the income threshold for families buying a home with three or more bedrooms looks set to rise to £74,000 from April 2012. London has been allocated enough cash to help around 940 buyers while the Midlands is getting enough money to help more than 2,400 people. Barratt Homes, Persimmon, Bovis and Taylor Wimpey among many other builders have said they will offer the scheme while Halifax, Barclays, Nationwide and Melton Mowbray have also come on board.
• Conservative housing minister Grant Shapps MP has called for more land to be made available for self-build and has openly said he supports opportunities for growth in this sector, calling on more lenders to offer this type of finance to borrowers. Currently 20,000 homes are “self-built” a year while 20 building societies offer mortgages specifically supporting borrowers building their own homes. BuildStore Financial Services claim the average LTV for self-build is 58% while the average borrower profile is a third or fourth time mortgage holder aged between 35 and 55 borrowing just under £200,000.
• At the last Budget in March the government committed to relaxing planning regulations to allow commercial properties to be converted into housing, speed up the application process will also be speeded up and require planners to prioritise growth and jobs
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traditional criteria that lenders apply,” he says. “The vast amount of self- employment and contractual work on the one hand and job insecurity on the other mean there are too few right borrowers for what’s on offer.” Mike Fitzgerald, director at Brentwood- based Brentchase Financial says there is an inherent irrationality in this move away from lending to self-employed people, many of whom are driven and ambitious people.
“Many people who have recently set up
with a new presumption in favour of sustainable development, while retaining existing controls on Green Belt land. Sceptics say it will be at least five years before we see any benefit from this meanwhile research by the Campaign to Protect Rural England found that the biggest developers last year held land with planning permission for 281,993 homes suggesting relaxing planning rules will do little to boost construction.
• The most recent government help was announced at the Tory party conference last month where Prime Minister David Cameron said social tenants would be entitled to bigger discounts on their property through the right to buy scheme. He said it could generate funds to build new social housing on a one-for-one basis.
• The build now, pay later scheme was first announced in March this year but last month Mr Cameron claimed Britain could see 100,000 homes built on state-owned land with no upfront cost to developers by 2015. This would be achieved by giving away public land to house builders and only taking payment once the homes are sold.
• Shared equity and shared ownership schemes introduced under the previous government rumble on under the Homebuy umbrella. Shared equity operates on a similar basis to FirstBuy with borrowers owning the whole property and taking an equity loan which is linked to a fixed proportion of the property value to be repaid on sale. Shared ownership offers borrowers the chance to part rent part buy their home making monthly costs more affordable. The Scottish government recently announced a further £4.65m to help a further 250 Scottish first-time buyers onto the property ladder through shared equity.
• Another of Mr Shapps suggestions was “mates mortgages” which was met with a rather cool reception by industry experts who said they would be a “nightmare” in practice and could create all sorts of credit problems for those trying to buy with a group of friends. Britannia is one of a small number of lenders that allows up to four friends to buy together through its share to buy scheme. Just 1,300 borrowers have taken the loan.
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