Summary
We recently helped our customers arrange a remortgage in Farnham to raise £175,000 from their residential property for a business purpose.
Both customers were self-employed, and the money was being raised to buy out a business partner. The main challenge was that their business had made a loss in the previous year, so we needed to find a lender that could consider their wider financial position rather than the recent loss automatically ruling out the application.
After reviewing the available options, we found a lender that could accept the purpose of the capital raising and the recent business performance, allowing the remortgage to proceed.
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The Scenario
Our customers were both aged 57 and self-employed. They owned a house in Farnham, Surrey, valued at £610,000.
They wanted to remortgage the property and raise £175,000, with the additional funds being used to buy out a business partner.
Their credit history was good, there were no liabilities recorded in the information provided and they had a reasonable level of income.
The main figures were:
- Property value: £610,000
- Mortgage required: £175,000
- Loan-to-value: approximately 28.7%
- Mortgage term: 12 years
- Mortgage purpose: Residential remortgage with capital raising
- Use of funds: Buying out a business partner
- Employment status: Self-employed
- Credit history: Good
- Product type: 5-year fixed mortgage
We needed a lender that was comfortable with why the money was being raised and how the customers’ self-employed income would be assessed following a loss in the previous year.
The Challenge
There were two main criteria issues that made this remortgage require more careful research.
Raising capital to buy out a business partner
Our customers were not simply switching their existing mortgage to another lender. They needed to raise capital from their home for a specific business purpose.
The £175,000 being raised was intended to help buy out a business partner.
Lenders have their own rules around additional borrowing and what the money can be used for. A lender that is happy to provide capital for home improvements or another personal purpose may take a different approach when the funds are connected to a business.
We therefore needed to identify lenders whose residential remortgage criteria allowed capital raising for this particular purpose.
The business had made a loss
The second important issue was the customers’ self-employed position.
Their business had made a loss in the previous year.
When considering complex income especially a self-employed mortgage , lenders normally review the financial performance of the business to decide what income they are prepared to use for affordability.
A recent loss can therefore reduce the number of lenders suitable for an application.
This did not mean the customers could not remortgage. It meant we needed to find a lender prepared to consider their circumstances and whose approach to self-employed income fitted the case.
The challenge was finding one lender that could accept both the recent business loss and the reason for raising the additional money.
What We Did
We reviewed the customers’ full position, including their self-employed status, the recent business results, the value of their home and why they needed the additional borrowing.
The first part of our research was to identify lenders that allowed capital raising on a residential remortgage where the money was going to be used to buy out a business partner.
We then needed to narrow those options down further by looking at how each lender treated self-employed applicants where the business had recorded a loss in the previous year.
This was important because finding a lender that accepted the capital-raising purpose alone would not have solved the case.
Likewise, a lender that could consider the customers’ self-employed position would not have been suitable if its rules did not allow the money to be used for the proposed business purpose.
We therefore focused on finding a lender that could consider:
- A residential remortgage in Farnham
- Capital raising of £175,000
- The funds being used to buy out a business partner
- Both customers being self-employed
- A business loss in the previous year
- A 12-year mortgage term
We found a lender whose criteria could accommodate the overall application.
The Solution
The lender we identified could accept both the purpose of the additional borrowing and the customers’ recent business performance.
This allowed the customers to raise the £175,000 they required against their £610,000 home.
The final mortgage was arranged as follows:
- Property value: £610,000
- Mortgage amount: £175,000
- Loan-to-value: approximately 28.7%
- Mortgage term: 12 years
- Mortgage type: Residential remortgage
- Purpose of capital raising: Buying out a business partner
- Initial product: 5-year fixed rate
Mortgage products and lender criteria can change, so the options available to another customer in similar circumstances may be different.
Why the Solution Worked
The lender’s criteria matched the main points that had made the case less straightforward.
In particular:
- Capital raising for the business purpose was acceptable.
- The customers’ self-employed position could be considered despite the business making a loss in the previous year, as the unbderwriter could see the sustainability of the business.
- The required £175,000 borrowing was achievable against the £610,000 property value.
- The 12-year mortgage term fitted the application.
- The lender could consider all of these points within the same residential remortgage.
The important part was finding a lender that was comfortable with the whole application, rather than finding separate lenders that accepted individual parts of it.
The Result
We successfully arranged the £175,000 residential remortgage our customers required against their property in Farnham.
This allowed them to raise the funds needed to buy out their business partner, despite the business having recorded a loss in the previous year.
The mortgage was arranged over a 12-year term on a 5-year fixed product.
Our customers were very happy with the service and the mortgage obtained.
What This Case Shows
This case shows why self-employed mortgage applications are not always decided by looking at one year’s figures in isolation.
A recent business loss can affect the lenders available, but different lenders can take different approaches to self-employed applicants and how they assess business performance.
The purpose of capital raising also matters. If you are looking to remortgage to raise money for a business purpose, the lender needs to be comfortable both with your income and with how you intend to use the funds.
For someone considering a remortgage in Farnham with self-employed income or looking to raise capital from their home for a business purpose, it can therefore be useful to review the lender criteria before making an application.
Looking to Remortgage for a Business Purpose?
If you are self-employed and want to remortgage your home to raise capital, including where the money is connected to your business, Kerr & Watson can review your circumstances and look at suitable remortgage options.
This can be particularly useful if your recent business figures are less straightforward, including where the business has made a loss. Contact Kerr & Watson to discuss your remortgage requirements and the options that may be available based on your circumstances.
