How are LLP mortgages assessed by lenders?

The rules and regulations relating to mortgages and their availability can be a confusing area, particularly for those who are looking to obtain their first mortgage. If you are a partner in a limited liability partnership (LLP), you may be wondering what rules apply to your situation and whether it is possible for you to get a mortgage.

Borrowers employed on a full-time PAYE basis are treated differently to those in self-employed situations such as the partners in an LLP. The partners in an LLP are treated in much the same way as those who are self employed so the amount of time over which you have run the business and the way in which your income is assessed will differ significantly from lenders' assessment of those employed full time.

However, borrowers who are self employed in all its various forms are, in the main, able to access the same mortgage products as those available to PAYE applicants.

What length of trading time is sufficient for obtaining an LLP mortgage?

The majority of mortgage lenders require borrowers who are self employed to have traded for a minimum of three years. In order to prove this, accounts for the periods in question will be required. In some circumstances, certain lenders will, however, accept a shorter period of time totalling two years. A still more specialised element of the lending market may even accept one year’s worth of trading and accounts.

In exceptional circumstances, a mortgage provider may even decide to lend to an applicant who is a partner in an LLP which been trading for less than twelve months. One key factor taken into account in this context will be whether you have had previous experience within the industry in which you are now working.

So, you may be pleased to hear that it can be possible to get a mortgage in the following situations:

  • Where you are a partner of an LLP that has been trading for as little as 9 to 12 months
  • Where a business that is established has recently changed or limited its trading style
  • Where you have been self employed for 9 to 12 months and have a history of bad credit.

What income is declared for a LLP mortgage?

In relation to income, your net profit share (which will be shown in finalised accounts) or your particular share relating to the total received income (which can be seen in SA302 self assessment tax returns) will generally be accepted by lenders.

The majority of mortgage providers tend to cap the sum they are prepared to lend upon the basis of 3 to 4.5 times your income. A few will go to 5 times your income and, although it is unusual, some will be prepared to go beyond this. As you may imagine, the higher the multiple, the more stringent the checks become. The value of the mortgage in relation to the value of the property (the loan to value ratio or LTV) will also be a significant factor here.

What is the situation if you have bad credit and wish to obtain an LLP mortgage?

Given the less than stable economic climate in recent years, a significant percentage of people are now entering the application process with a history of bad credit. Mortgages catering for those who find themselves in this situation have changed in line with market conditions and regulatory factors.

Whilst bad credit mortgages are perhaps not as readily available as they once were, the change in the dynamics of the lending market and the on-going uncertainty in national and global economic outlooks have motivated some lenders to re-enter the market offering these mortgages. It is worth remembering that even if, historically, you have had an application declined by a lender, their criteria may have changed significantly in the intervening period. Our experienced advisors can access products that are not available via a direct approach to the lender in question.

In fact, we have organised bad credit mortgages for those with a history of the following issues:

- Repossessions
- County Court Judgments (CCJs)
- Missed mortgage instalments
- Low credit scores
- Individual Voluntary Arrangements (IVAs)
- Payday loans
- Defaults
- Bankruptcy
- Little or no credit history
- Schemes relating to debt management plans (DMPs)
- Late payments

Major Credit Reference Agencies (CRAs)

One thing that it is particularly important to recognise is that there are three major credit reference agencies (CRAs); Experian, Call Credit and Equifax. Different lenders use different CRAs and, whilst much of the information is (or should be) common across all of them, there are nuances in the way in which each of the agencies presents and scores an individual's history and there are most definitely inconsistencies.

It is, therefore, absolutely critical that you take the time to request a detailed credit report, not only from one but from each of these three agencies. You should be able to obtain at least one free report per year and you will find a range of offers for monthly subscriptions in order to track and monitor your score and your progress.

The combination of being self employed and a history of bad credit will undoubtedly limit the range of lenders who will entertain an LLP mortgage. However, it is entirely possible to find a lender with the appropriate specialised approach to lending in these circumstances. We work with a range of specialised mortgage lenders who will consider and appropriately assess the severity and age of any debt issues.

In general terms, your chances of successfully obtaining a mortgage improve as any issues fade into history. Lenders also view any issues in context. For example, one late mobile phone bill payment will be viewed in a very different light to multiple Debt Management Plans or a missed mortgage payment. Our specialist brokers have years of experience in working with applicants with adverse credit histories and can advise as to the best course of action.

Clearly, it makes sense to improve your credit rating and the good news is that there are some things that you can do to improve the information seen by potential lenders over time:

Check your report with each of the agencies.

As we mentioned earlier, you will need to be aware of the information to which the lenders have access, remembering that they use different CRAs. You can sign up with the various agencies online.

Actively Borrowing

Taking out a credit agreement and paying it in a timely and responsible manner can have a positive effect. If you're not currently using credit cards, consider signing up for one and using it. Of course, it's essential that you clear the balance every month. This way, you shouldn't be charged interest if you make the payment within the relevant period and you will be seen as an active, responsible borrower.

If your current credit score prohibits you from obtaining a mainstream card to use in this fashion, you may want to think about opting for an adverse credit card. Some of these offer guaranteed acceptance and, whilst the associated interest rates may be higher, if you pay within the requisite time scales, this shouldn't be relevant and using the card in this manner will achieve the same effect of demonstrating responsible borrowing.

Over time, you should begin to see some improvement to your credit score, assuming that all other factors remain the same.
credit-report-on-mobile

Can LLP borrowers obtain mortgages for buy to let properties?

Demand for buy to let mortgages has remained high, despite a significant increase in stamp duty in 2016 and fairly dramatic alterations to the way in which HMRC determines profit for buy to let landlords.

Provided that you meet the lender’s criteria, it is possible to obtain a mortgage for buy to let properties if you are in a limited liability partnership. There are some mortgage providers who refuse to offer BTL mortgages to those who are self employed but there are other providers who are happy to do so, even if you have less than 3 years’ worth of accounts. It is also possible to identify lenders who do not have minimum income criteria for a buy to let mortgage, instead deciding to base their decision as to whether to lend on whether the rental income projected is sufficient to cover any mortgage granted.

One significant difference with buy to let mortgages is that they typically require a higher deposit compared with residential mortgages. There is still a strong appetite amongst lenders for lending to those who wish to invest in the property market and the majority of lenders will offer buy to let mortgages with a deposit of 30 to 40%. Some will be willing to consider a buy to let mortgage with a deposit of 20 to 25%. A few may even be willing to offer a buy to let mortgage with a small deposit of only 15% in certain circumstances. It is interesting to note that there are fewer lenders offering this type of mortgage within Scotland where higher deposits are generally required. Specialist advice is recommended in this area.

What else can influence my eligibility to obtain an LLP mortgage?

There are a number of other factors that can impact your ability to obtain an LLP mortgage:

Age of the borrower

If you are in retirement, a specialist mortgage lender will most likely be recommended as some lenders will not lend to borrowers who will exceed a specified age by the end of the mortgage term. Again, stringent checks will almost invariably apply in these circumstances.

The type of property

If you have a property that is not of a standard construction or situation, it may well be necessary to identify a lender who specialises in such areas. There are various types of non-standard properties including, but not limited to:

  • Flats above shops
  • Flats on a 5th floor or above
  • Thatched roof houses
  • Prefabricated steel
In this context, 'non-standard' construction can be identified by looking at specific construction techniques including those used in the creation of the roof. Examples here might include thatched cottages or an ultra-modern home created using a steel, concrete and glass construction.

Lenders are inherently fairly conservative but the property market is changing and the availability of suitable mortgage products is evolving in-line with demand. Given the partners of an LLP may well be restricted to a subset of the overall lender market, compounding this with a non-standard property can, on occasions, render the whole process rather more challenging. It is worth considering this and, potentially, refining your property search accordingly.

The amount of the deposit

The majority of lenders will require a minimum of 10% deposit for a residential property. However, there are some who, provided that the circumstances are right, will agree to a 5% deposit. It is always a good idea to put as much down as possible if you are in a position to do so as this will almost invariably broaden the range of available products and rates.

The outgoings of the borrower

The regulator (the Financial Conduct Authority) requires that all lenders undertake a thorough assessment as to the affordability of any proposed loan. Borrowers servicing significant debt or with multiple dependent children will usually find that this will limit the value of any loan based upon a combination of income multiples from their LLP income and any other sources, offset by their outgoings. 

The Mortgage Hut can help

This is a complex area and requires expert advice. Why not contact our specialist team today here at The Mortgage Hut. We will take the time to understand and assess your particular situation and can provide advice and commence the search for an appropriate mortgage product based upon your objectives and specific circumstances.

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