Mortgages and “interest” rates – a contradiction in terms?

The notion that there has been virtually no interest on mortgages for so long does tickle me.

Mortgages and “interest” rates - a contradiction in terms? Performance Accountancy, Louise Herrington, Getting a Mortgage when self-employed

It is probably the most boring subject in the world, just above tax I suspect!

Sadly, this lack of interest on so many levels does impact a lot of people, especially the self-employed, so here is the second part in our thrilling series on everything you wanted to know but were afraid to ask about mortgages.

I will try and add some “interest” at no charge to you, dear reader.

The last post about mortgages was all about getting some standard documentation from your tax account, and the need for an accountant’s certificate, but post-COVID 19 pandemic (if there is such a thing at the moment), mortgage companies are requiring more information from the self-employed.

They now require a full copy of the submitted tax return for 2020-2021 and 2021-2022, rather than just the SA 302 and tax year overview. You are able to get this from your tax account, or just use the copy that your accountant sent to you to sign if they have used commercial software to file your tax return.

So what the devil are mortgage companies looking for now?

Well, the full return will show any SEISS grants claimed, as well as any other COVID grants. Originally, a mortgage company considered this to be a risk as effectively there was no work for the self-employed and it’s being topped up by the governments. Could then the normal income support the mortgage payments? They disqualified anyone from the mortgage application process if they claimed the grants, unless the non-grant income was enough to support the mortgage application.

Caution – “interest” reference coming up

Interestingly enough though (if that phrase can ever be used in a post on mortgages), employees that received furlough payment don’t have to declare that they were on furlough as it’s hidden in the P60.
They don’t get discriminated against because their employers put them out to pasture whilst the government was propping up their pay.

The second thing they want to look at is if there’s any foreign income in the return, as this might
be riskier if you have to travel and potentially travel gets stopped again.

A few brokers have said that the mortgage companies will ignore foreign income. That is a bit of a concern for musicians and opera singers, as often they have to jump into Europe to do various contracts or cover a role.

Or they might be “employed”, and I use that term loosely, by a production house overseas for an opera season, just one opera or maybe the whole season. This can be a significant portion of income for that person.

How will the mortgage company know about the overseas income – sorcery?

There are unsubstantiated rumours (mainly in my head) that they communicate with seeing stones using the power of the mind. The simple answer, however, is that any overseas income would be declared in the foreign section of the tax return, providing taxes have been deducted. It doesn’t actually require you to put down all your foreign income.

It just says if taxes are being deducted locally.

There is no other declaration anywhere in the tax return about other foreign income. So does that mean if you are taxed with withholding tax, which is how most of the European countries should operate, is that really going to be a disadvantage?

Well, potentially yes.

What’s the solution? None at the moment, as you are correctly doing the tax return by putting in any taxed foreign income into that section of the tax return and any untaxed self-employed foreign income going into the gross income of self-employment.

You may want to keep some bookkeeping notes and record any income you get from UK self-employed work; any income you get from an overseas source that has not been taxed, and then any gross income (before taxes being deducted from overseas) for foreign work.

But to be honest, it’s just another example of people not understanding the life of a musician and opera singer. Plenty more hoops to go through for the self-employed trying to get on the property ladder.

On that note, we asked a friendly mortgage broker for her thoughts on all this.

Here’s what Sarah Parkin at independent brokers Hollybeck had to say, thank you for your
insight Sarah!

“The landscape for the self-employed has much improved over the past few months, with some lenders now reverting to pre-covid requirements on documentation. Not all have, though. I firmly believe that anyone who is self-employed should seek the advice and guidance of an independent mortgage broker. Your broker will know, based on your needs and the paperwork you can provide, who is best placed to help. Complex income sources often need the eyes of a human underwriter – not a computer – and so it’s the smaller building societies who we tend to work with in these situations. Be warned though – not all brokers have access to the smaller lenders so do your homework on your broker to make sure they aren’t restricted to using a lender ‘panel’.

Wise words on finding the specialists there from Sarah.

Whilst the landscape for the self-employed has improved in general, we know that for us performers (and yes, I do still perform the odd show myself) we are in a very tight spot so as ever, it pays to get niche advice. If you need any on your dreaded accounts, you know who to ask. I might even make it a little more “interesting” for you.

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