Comedian and cartoonist Paul Savage
(Picture: Matt Writtle)Paul Savage, 38, is a comedian and cartoonist who’s just been given notice on a flat he has been renting in Catford for only three months. “I’d like to buy somewhere so I don’t ever have to speak to a letting agent again.” He knows it’s harder to get a mortgage as he is self-employed and a sole trader, but he’d like to look into it.
Savage has been self-employed for 10 years; eight of those he was growing his career, one year was when Covid hit, but his last year of accounts was really good. He currently pays £800 a month in rent and would be looking to pay a similar amount in mortgage repayments. He has saved up £51,000 for a deposit, £19,500 of which he has in a Lisa. As he’s a first-time buyer, it’s unlikely he will pay stamp duty. “I want to know what I can get for a mortgage and then what I can buy: is it a flat in Bromley or do I need to leave London?”
The details
- Deposit: £51,000
- Current rent: £800 per month
- Bills: £200
- Monthly income: £2,000 to £3,000
The advice
Tom Woodall , of Prosperity Wealth, says:
Savage’s situation is a common scenario with people who are self-employed as the majority experienced a reduction in their income for the financial year ending 2021 due to the pandemic. The criteria a mortgage broker would need to fulfil relates to “lender’s assessment of self-employed (sole trader) net profits”.
Many lenders will average the last two years’ net profits, which in this case could drastically reduce the amount Savage can borrow for a mortgage. However, some will consider the most recent year’s net profits but will usually need to see an established trading history, which Savage has.
This is particularly the case if we are considering approaching a lender that will accept the most recent year’s net profits while also offering rates comparable with the high street. Savage currently has a monthly income of £2,000-£3,000. Annually, this would equate to a net profit of £24,000-£36,000. Let’s take the average, an annual net profit of £30,000.
The maximum mortgage amount based on Savage’s net profit for the most recent year is £134,500. With his deposit added, the maximum property price would be about £185,000 which, according to Zoopla, would buy a one-bed flat in Bromley. There is a five-year fixed deal at 5.09 per cent. This would cost Savage £734.22 a month, a saving on his current rent. This is based on an overall term of 30 years, taking him to state retirement age.
Sarah Tucker, founder of The Mortgage Mum, says:
The good news is that there are lenders that will take much more of a balanced view on cases such as Savage’s, ie when your business has been affected by Covid, but has recovered.
The job of a mortgage broker is to find the right lender for you. They’ll want someone who’ll utilise your latest year of income, as opposed to taking an average of the last two years. As a ballpark figure you can usually look at between four and a half to five times your income. Lenders will also be looking at your disposable income. What do you have left over every month? Whether your current spending patterns will change when you buy your own property?
When it comes to self-employed income, they’ll be looking at your SA302, tax year overview or tax year calculations. This will show them what you earned and can be found as a total figure. The biggest mistake self-employed clients make is earning one figure and declaring another. The best advice is to get advice that is tailored to you.
Most of all, choose a mortgage broker you trust who is going to fight your corner with underwriters.
