Home loan squeeze leaves self-employed stranded

Published 01st Sep 2010

Millions of self-employed people could be shut out of the property market because banks are using their lowest annual income to decide if they can afford a mortgage.

In a move that threatens small businessmen, as well as workers who have their salaries bumped up by commission, bonuses and overtime, banks are demanding to see proof of income going back three years before granting a mortgage.

Using the lowest rather than the average income over three years can have disastrous consequences, as the incomes of many self-employed people can vary hugely — or they might have had one particularly bad year.

The restrictions could leave them unable to find a new mortgage or buy a new home.

For example, if someone expects to borrow four times their income and earned £25,000 one year, £40,000 the next year and £60,000 the next, their average income would be about £42,000, which means they could expect a mortgage of £168,000.

However, if a lender considered only £25,000 as income they could expect a mortgage of £100,000.

HSBC requires three years’ evidence of bonuses and will take only 50 pc of that average into consideration when assessing affordability. ING Direct will also accept only 50 pc.

Lenders are already tightening criteria after City watchdog the Financial Services Authority signalled a major crackdown on the way banks assess mortgage customers.

It wants to ensure all borrowers have their income checked and lenders properly assess whether or not the consumer can afford their mortgage payments.

Source: ' Daily Mail '

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