Our Business Remortgaging Lender Panel Includes:
It’s hard to believe that just a few years back, the self-employed could very easily get a mortgage. Today, all that’s changed. The Mortgage Market Review changed the entire mortgage landscape for the self-employed back in 2014.
For those who have had their mortgage in place since before then, you’ll no doubt be surprised how difficult it can be to obtain a remortgage. If you want that remortgage for business purposes, the majority of lenders will instantly tell you that it’s not possible.
The difficulty is in part because the regulators tightened the regulations surrounding interest only mortgages and outright banned self-certification. All borrowers must be able to prove they can afford the repayments on any home loan now.
As a business owner, that’s made difficult due to income fluctuations. If you’ve only a limited trading history of less than three years, your selection of lenders will be narrower.
Specialist lenders are available now that do approve on remortgaging for business purposes - Complete The Form Below
Remortgaging For A Home-Based Business
Home based businesses are extremely complex and all the main lenders steer clear of them. Mainly because your home’s current mortgage is based on a residential property. Any modifications that are completed to a residential property to make room to run a business can affect its resale value.
What lenders don’t want is to allow you to remortgage for business finance, then make adaptations, such as turning a garage into a commercial kitchen space so you can bake gluten-free products or similar. That would make it more difficult to resell the property as it’d limit interested buyers, driving the property value downwards.
There is a new classification of home loans that not even lenders have caught onto yet. That’s the semi-commercial mortgage market. When you live and work in the one residence. Not even having all the business insurances in place is enough to convince a lender that your home is indeed your home and not used specifically for business purposes.
There are many people that will have obtained a mortgage a few years back, perhaps whilst in employment and are now running their own business.
If that’s from home, and it wasn’t before, that’s a change in your earning circumstances that your current mortgage provider perhaps isn’t aware of. That change in circumstances may well make them nervous, even more so when you ask to remortgage to fund your business.
It’s a high risk and if they’re only just now hearing of it, it’s probable you’ll not be approved.
It is entirely possible to remortgage by switching to a specialist lender who accepts the often extremely low risk involved in home based businesses.
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Disclosing The Business Use Of Your Property
When you apply for any type of home loan, the utmost honesty is needed. Anything short of that will be discovered. There’s no point making things more difficult than they already are.
If you intend to use a part of your home to run a business, the lender should be aware of that.
A not-so-unique situation anymore is people who trade online on a part-time basis but don’t technically class it as running a business. If you sell anything with the intention of making a profit, it is a business transaction.
All income you make from selling anything, whether it is products or services must be declared to HMRC. At the time of remortgaging, you are going to be required to disclose your income amount, expenses, and explain all sources of income.
Tax avoidance is a serious issue and it can be the cause of rejection from some lenders. Other lenders are more transparent and will advise you on what you need to do before they’ll even begin to process your application. The majority of times, that’s to make your income declaration to HMRC, and straighten out your finances.
Any finance arrangement to fund business activities can only be approved when it’s operating legally. If there’s anything that makes your income or business set up look like there’s some tax avoidance happening, it will be rejected and may require a disclosure by the lender if it is thought to be illegal.
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Remortgaging For Business Finance Is A Specialist Lender Only Sector
All banks and building societies will offer a range of services to business owners. Remortgages aren’t one of those. The majority of their customers are consumer borrowers.
As such, products are tailored for consumers, which in the case of properties mean they primarily cater to residential properties. There will be commercial products available, but they’re not something you can use by switching your current mortgage onto because your property type remains residential.
The difference that’s factored into your application consideration by specialist lenders is that they get the facts from your documents and by using a mortgage broker, they can give context to your application by letting the lender know your backstory.
The experience you have, your plans, your history (trading or a large network of support) and give a decision-maker a lot more information that you can provide on an application.
Bespoke underwriting is often required for remortgage products when it’s required for investing.
The documents you'll need*
- Form SA302 as evidence of your self-employed income
- Income and expenditure evidence to show your income cashflow
- And the last few months of bank statements to verify that
*Not applicable to our advisory service. Only applicable to applications for suitable products
Whether you submit your own tax returns or outsource your accounting to a professional doesn’t matter. So long as your figures are accurate and verifiable, there will be a choice of specialist lenders in a position to consider your application.
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Can I Remortgage To Start A New Business?
All applications are considered on merit. The majority of times, you won’t be able to remortgage to start a new business. The only exception to that is for High Net Worth clients and that’s only with a select group of lenders.
A high net worth client is often someone whose income after tax is above £150,000. The figures will need to be verified by an accountant. In addition, there will be more weight given to applicants who have additional assets that can be used as security.
The only reason most new start businesses trying to release capital from their homes to start a business by remortgaging fails, is because there’s no income cashflow.
This can’t be stressed enough. You must be able to satisfy the affordability criteria for any home loan. If you’re only at a stage of planning a business, but have yet to test things and generate a steady income, you won’t be approved by any lender. Regulations make it impossible to obtain a mortgage without a steady income that will allow you to comfortably repay the loan.
For those currently in employment it may be possible to use that source of income to pass the affordability test, but you do need to consider if you’ll remain in employment until you have grown the business to a profitable stage. If your intention is to leave employment to start the business, advice from an experienced mortgage advisor should be sought before you apply for finance as that’s an extremely high risk to take.
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Calculating What You Need
All remortgages are based on a loan-to-value ratio. That can be up to 90% of your property value. Some financial firms will allow up to 95% LTV, although that is rare.
The higher amount you ask for, the higher the risk there is to the lender. To get the best chance of success, it’s best to keep your LTV ratio low.
The majority of standard remortgage deals are 50% to 75% LTV. In practice, if your home is worth £100,000, you’ll be able to borrow up to £50,000 to £75,000. It can be higher, depending on the lenders acceptable lending criteria.
To work out how much of a LTV deal you can access, you need to know what your home is worth.
A few ways you can use to reach that valuation figure include:
1) Zoopla’s home valuation tool
2) Ask at a local estate agent (or a few)
3) Get a survey
It is unlikely they are going to give you the same figures though. As an example, using three different estate agents will likely render three different figures, most of the time because that’s only based on what the estate agent thinks they can realistically market your property for. That’s based on the current market conditions.
Zoopla uses data collection methods that includes data pulled from the Land Registry Database.
How Lenders Value Your Home
Home valuations are completed by lenders in a few different ways:
1) A full valuation report carried by a surveyor
2) A drive-by valuation, which is only someone assessing the property from the road for structural soundness and not carrying out an internal inspection.
3) Another route some larger lenders are taking is to use an Automated Valuation Model. This is similar to the Zoopla process of gathering data from multiple sources to get a ballpoint figure. If the process shows that the property price has decreased, it’s usually followed up by a surveyor conducting a full home valuation in order to verify that it is enough security for your loan.
This is mostly used by larger lenders to speed up the application process, however since you’re trying to remortgage for business purposes, this is unlikely to be a process that’s used as you’ll need to approach specialist lenders. The vast majority of the time, the home valuation will require a surveyor to inspect and value your home.
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