Welcome to the brokers blog; where we discuss the latest developments, common queries, spurious sources and the sublime, ridiculous and esoteric aspects of the mortgage industry.
A big decision when applying for a mortgage is often whether to apply solely or jointly with a partner or spouse.
I frequently get enquiries where a customer wants to arrange a mortgage alone, despite being in a relationship or married. Often, they can be a little disgruntled about me digging deeper into this decision.
You shouldn’t be offended if a broker questions this decision, though.
It’s actually a sign of good mortgage advice. Ultimately, a mortgage advisor should ensure (to the fullest extent possible) that you get the best solution.
Whilst we cannot advise on matters of tax and law, we have a general awareness of the situations that can give rise to the biggest issues. It’s an important part of giving the best advice to ensure that a customer is basing decisions on genuine facts, not hearsay and getting other advice where relevant.
As part of that, many customers should get recommendations on both a sole and joint basis and consider options fully. If a broker doesn’t expand on this with you, it’s questionable whether they are doing a good job.
Why is applying in your sole name an issue?
There’s a myriad of complex legal and taxation issues that arise from the decision of whether to apply solely or jointly.
How you arrange the ownership will determine whether additional stamp duty or exemptions like First Time-Buyers Relief might be applicable. They may also impact on capital gains tax liabilities.
But these decisions can also lead to missing out on the additional relief for Inheritance Tax on a main residence, a property being inherited by a sibling or parent rather than an unmarried partner, a partner unintentionally becoming a co-owner and lots of other issues.
Secondly, there are a broad range of alternative solutions of ownership that might be suitable. Including specifying different percentages or ownership, secondary legal instruments like declarations of trust, mortgage products that allow a “joint borrower- sole proprietor”, etc.
It’s vital you know and understand your options. The cost implications can be life changing.
So let’s consider some of the reasons people might assume they must apply alone first:
- I’m the only income earner; this doesn’t mean you have to apply alone, although it might affect the potential loan amounts with some lenders (but not all). Either way, a good broker could give recommendations on a sole & joint basis.
- My partner is self-employed or has complex income; again, the mortgage broker should at least offer a sole & joint basis recommendation here. Self-employment isn’t complex for a competent advisor, and you might jeopardise the rate you could receive by placing constraints on the best solution.
- My partner is a foreign national on a visa; another example of a situation where you might be better off joint, and advice should cover all your options.
- My partner’s income is foreign; although most lenders don’t accept foreign income, it might not even be required on the application. This should not preclude a joint mortgage.
- My partner owns another property; This is an example where it may, for tax reasons, or possibly affordability, mean that a sole application is best. But it’s still a case where an adviser should consider the numbers and ensure this seems correct.
- My partner has significant debts; this doesn’t mean you should always apply alone, and the mortgage advisor should consider the level of debt, its impact on affordability and potential credit scoring and should discuss and agree this with you.
- My partner’s income is cash-based, seasonal or irregular; again, this does not mean they cannot be joint applicants, and it also doesn’t mean the income cannot be considered. Good advice should cover all options.
- My partner doesn’t have good credit; an advisor should consider what that means. If someone was previously bankrupt (for example), this might be relevant, but if an applicant just had a low credit score due to never having had credit, it might be irrelevant and have little to no effect on suitable products.
There are countless examples of reasons why someone might assume they should apply alone. But in reality, good advice should usually consider both sole and joint applications and then give you a cost differential for those options.
For many customers, though, the decision has been made based on legal or tax considerations and is about a preference for a sole application. So let’s consider some of those preferences:
- We want to take advantage of first-time buyer stamp duty relief and capital gains tax benefits on a buy-to-let investment in the future; current tax law would prevent this if the applicant is married or in a civil partnership in terms of stamp duty but might give some benefits in capital gains, so the advisor should be checking this to ensure this preference makes sense and guiding an applicant to take suitable tax advice. For those in a non-marital relationship, it could be a good decision. Also see the next point.
- My partner wants to buy a buy-to-let investment property, and it will be easier for them to get a mortgage; curiously, whilst the tax situation could be better for some situations, the mortgage eligibility situation is often worse. Most of the time, being on the ownership of your main residence and having experience with a mortgage will generally improve your buy-to-let mortgage options and potential maximum loans.
- All of the deposit is mine, and I want to retain full ownership of the property; where this is the case, it can make sense, but if the applicant is married, it may be irrelevant and marital law advice should be sought. Whether married or not, if the other person subsequently contributes to the bills or mortgage, they could gain a legal interest. Again, it’s best that some legal advice is taken, and there is the option to split ownership in differing percentages. An applicant should be advised of these options.
- I’m going through a divorce; The advisor needs to have considered this, as the finalising of the divorce settlement may need to take place before completion (or the property could become part of the settlement anyway). Considerations like whether there will be a level of maintenance to pay a former spouse must be factored into the lender’s affordability.
In concert with those considerations, though, an applicant must understand the legal effects of sole ownership, particularly regarding inheritance tax and the potential ownership of the property on death.
Sole ownership for a married couple could negate the joint inheritance tax threshold on a married couple’s main residence and cause a double tax bill on separate deaths. Similarly, for non-married couples, it could invoke double IHT bills and greatly increase the liability.
Where someone simply wanted to protect their interest on separation, other legal instruments might have given a better balance of risks. So this would be a situation where good tax and legal advice is paramount.
Wills must be made reflecting preferences for ownership and considering the impact of death where the property might pass into the ownership of parents, siblings or even children who are still minors rather than an unmarried partner who is also a parent.
Summary
To conclude, then, good mortgage advice should test your assumptions, offer you the opportunity to consider both sides of the coin if relevant, and direct you to take legal and tax advice in many instances.
Whilst it’s ultimately your choice to arrange things as you prefer, any advisor that doesn’t discuss these things with you and document them in their suitability letter is likely leaving scope for future complaints; whilst also ignoring the delivery of the best outcome for you.
In our Q&A, we address some of the frequent or unusual questions posed to mortgage brokers.
Does RSU income count as income towards a mortgage?
In short, yes! We can help you find lenders who can consider this income, though many will not.
There is, however, still a good range of suitable lenders for most applicants, with rates ranging upward from some of the most competitive in the market.
If your application has been declined, or if you have spoken to other advisors who said this income isn’t acceptable, call us.
It is a complex type of income, which many advice firms may be unfamiliar with. Many lenders will not accept it, so never take being refused by a few lenders as a definitive answer.
If another advisor says it’s unsuitable, other factors may be involved. So always take a second and third opinion.
Our RSU income mortgage advice service
The criteria determining overall eligibility and how much will contribute towards your maximum loan is complex and varied.
The good news is we can help you find and arrange suitable loans with lenders who accept this income stream and calculate correctly their appropriate maximum loans whilst also ensuring that you meet all the other criteria that might be applicable.
There’s a good chance (if you receive RSU income) that you may also have other challenging factors, like non-sterling income, dual-taxation arrangements or a fixed-term contract. If you are a foreign national on a visa, this is also one of our areas of expertise, so rest assured we can help.
Our typical advice fee is only payable after a fully approved application (there is no cost in getting recommendations). So, we don’t earn anything unless an application is successful.
Our typical fee is just £299. We earn a commission from the lender (but this is built into the product), so we don’t change the rate or applicable fees. We’re whole of the market and deal with most of the lenders in the UK. We don’t typically charge a fee on remortgages.
We do not, however, deal with customers residing outside the UK. If you live overseas, we cannot assist you. Other advisors may.
Maximum income multiple available with RSU income
This question, is raised frequently. But lenders don’t just use income multiples, so you shouldn’t focus on this aspect.
Whilst most lenders have a maximum multiple (which many never publish), they usually have a myriad of other calculations as well; based on net income, other credit commitments, financial dependents and stress testing based on notional interest rates (one reason why maximum loans have decreased significantly in the current high-interest rate environment).
So, the only way to get a firm sense of how much you can borrow with complex income streams is to speak to a competent broker such as ourselves; we can check all the suitable lenders’ affordability calculations.
When it comes to complex income streams, especially those that vary month-to-month, it’s necessary to see payslips over 3-12 months, P60s and get a full breakdown of all commitments to give an accurate estimate.
If you try to preempt this with income multiples, you might either massively over or underestimate realistic borrowing levels. There is no cost involved in having an outline discussion with us. So get in touch!
Factors affecting the lenders available for RSU income mortgages
With any income that fluctuates, lenders will often look for continuity. If a monthly bonus scheme has been received in only one of the last three months, fewer lenders will accept it.
Being a UK taxpayer and being paid in sterling is a requirement for many lenders accepting RSU income, but not all. If your income is in another currency or taxed overseas, we can still help.
The length of time working for your current employer will be pivotal in the number of lenders available. If you have worked for this organisation for less than a year, fewer lenders are available.
Some lenders will only consider this income once it vests. Hence, they may be looking at income received two or three years ago. In that case, you would need to have been employed with the current firm for a long period.
What is income paid as ‘restricted stock units’ otherwise known as RSU income?
This income is quite unusual for those employed outside the tech sector. The employer pays someone part of their salary or performance-related pay in the company’s shares instead of cash.
These shares are restricted, meaning they receive them several years after being awarded, typically with a requirement to remain at the business to receive those share units.
It’s a great way for the company to create further incentives for the employee to remain at the organisation, and work to the best of their ability.
The employee has a significant part of their income riding on both remaining at the business and its long-term performance.
Why do many lenders refuse to accept this income?
The logic can be quite varied and is typically quite flawed.
Lenders will often say it’s about the volatile nature of many of the shares involved; price fluctuations in shares like Alphabet (or Google), Apple, Amazon, Microsoft, Tesla, etc might be more transient than others, but they are still some of the most valuable entities on earth.
Some lenders complain that the income is deferred and not in someone’s pocket for several years.
That could be a concern for a new starter, but (for those who have been in the job for several years), they arguably provide a greater degree of certainty that the applicant’s income continues through recessions and downturns.
They might also choose to retain the stock as an investment, but anyone paid cash could also buy shares with their income; the lender still has the same exposure.
Really, underneath the answers given by the lenders is an underlying truth; lenders have to simplify their decision-making processes and regiment these in some way (to facilitate scaling their operation).
So, only the smaller building societies or boutique private banks tend to assess each application on a ‘case by case’ basis and typically charge a premium for that service.
Most lenders, therefore, create a very defined set of rules about what is allowed, and these rules often take a long time to reflect changes in the outside world.
RSU income will likely become increasingly accepted due to its growing prevalence and the fact that it arguably offers the lender more protection than other performance-related pay.
But today, if your lender refuses to consider this income, applying via a different lender will likely be the most effective use of time, and we can help to ensure that application goes to a lender who accepts this income.
In our Q&A, we answer some of the questions mortgage advisors answer regularly.
Question; I hear it is difficult to arrange a mortgage on a freehold flat; why is this, and is it possible to mortgage one?
In a freehold property, you are responsible for the maintenance and insurance of the building and own the land attached.
In the case of a typical house, this is a good thing. However, in the case of a flat, there may be no clear definition of who is responsible for various parts of the building.
Your ceiling may also be a neighbour’s floor, and your floor, another neighbour’s ceiling.
Imagine that your upstairs neighbour leaves his bath running and your roof collapses; whose responsibility is this now?
If your neighbour has no insurance, it could get pretty messy, and that is why it can be a no-go area for many mortgage lenders.
But, the question of mortgaging freehold flats can also turn into something reminiscent of a Monty Python sketch.
Where the plot thickens; is in what context may the property be considered a freehold flat?
Freehold flats in Scotland
If you are buying in Scotland, especially if you live in the rest of the UK, you may be unaware that there has never really been an equivalent to leasehold property in Scotland.
So a property listed as a freehold flat is not a big issue over the border.
Properties that own a share of the freehold
Properties that own a share of the underlying freehold are not themselves freehold.
The property will have a lease and may need to pay service charges and ground rent, just like any other leasehold property, although some have no regular charges payable.
When a lease requires an extension, it is still a costly process.
Their main advantage over a leasehold flat is that you have some say in managing the freehold with the other owners; you would hope this means that charges should be more fairly administered.
These properties are often sold and listed as freehold, with the blissful ignorance of the vendor, estate agent and even the lenders’ surveyors.
Who, for reasons unknown to science, are usually considered bastions of fact in complex legal matters; despite having no relevant qualifications in the field; instead of the lender checking the land registry.
What ensues is mortgage applications being rejected based on properties being freehold on the hearsay evidence of an estate agent.
If you have found yourself in this situation, we should be able to help. These properties are normally acceptable to many mainstream lenders.
Many still have complex rules about the share of the freehold and how it is owned and managed, so it is vital to select the right lender. But if you have found this problem, we should be able to help.
Properties with a long lease or lifetime lease
On occasion, a property with a long lease of 999 years, or thereabouts, will be described by a vendor as freehold, under the impression that it is ‘as good as freehold’.
Often, when there is no service charge, ground rent, or a ‘peppercorn ground rent’ of £1 per annum, sometimes a service charge or ground rent is payable, but the freeholder is absent.
If the freeholder is known and the vendor is just misrepresenting the property as freehold then the situation is readily fixed by asking the vendor and agent to tell it like it is.
An AWOL freeholder can present different problems beyond the scope of this post and is something to discuss with your conveyancer or solicitor, but aren’t the boon they may appear to be.
In most cases, we can help you arrange a loan on these properties; if the freeholder is absent, consider this problem before getting seriously involved in the purchase.
A freehold flat or maisonette where the remainder of the properties in the block are leasehold
A common area of confusion is a property that owns the freehold of a block, and the remaining properties within it are leaseholds.
These are not uncommon; often they are created when someone converts a house into flats and retains ownership of one of those properties. It is not possible to own a lease to a property when you also own the underlying freehold.
Legally speaking, we are repeatedly advised by conveyancers that such properties should be as good as any other leasehold flat from a mortgage perspective, but you will not find this in practice.
The vendor of such a property will usually make it very clear that it is freehold, as there is a public perception of this being preferable due to the often unfavourable costs of service charges, ground rent and for occasional lease extensions imposed by many freeholders.
Mortgage lenders usually make their staff very aware though, that they do not lend on what we might consider a truly freehold flat, where all the properties in the block have a freehold title.
That creates a situation where the lender immediately rejects any application and refuses to value the property, under the misapprehension that it is the more ominous type of freehold flat.
For this reason, you will find it very difficult to arrange a mortgage on such a property without a competent advisor.
Generally, a mortgage on these properties should be possible with mainstream high-street lenders, although many may still be unsuitable. Get in touch with us for help on these.
A freehold flat or maisonette where the remainder of the properties in the block are freehold
This is where things get more complex.
For these properties, complex rules are set out by lenders within their guidance notes to conveyancers on acceptable tenure in the Council of Mortgage Lenders Handbook.
Whilst enquiring directly to a lender will usually result in an endless slew of responses refusing to consider freehold flats, speak to any conveyancer, and you find that there are often acceptable legal instruments other than an actual lease over the property.
You should be led by your conveyancer on the properties suitability for a mortgage from the legal perspective; the property may still be unsound structurally or have other issues that make it complex to mortgage.
Such properties may often be marketed as cash purchase only or even sold at auction. In the case of a cash purchase, the agents may have agreed to sell the property this way based on other factors, such as property condition. Again, this may have caused a decision to sell at auction.
So do not treat an indication from a conveyancer that a property can be mortgaged as final, and you should be prepared to risk losing your deposit if you intend to purchase such a property at auction and require a mortgage.
If you are intrepid enough to try and mortgage such a property we can help, once a conveyancer has been through the legal side and confirmed that it is suitable.
But expect that such a purchase could take some time as it might have to be sanctioned by the lender’s internal legal team, which is a notoriously slow process that often takes several weeks.
If you’re reading this article, a mortgage broker or lender has likely requested several years of SA302s and Tax Year Overviews from you as part of the documents required for an application.
An SA302 may be called a tax calculation or computation. It’s an abbreviated form of the complete tax return, showing the profits broken down into elements, like income from salary in paid employment or from UK land and property.
It clearly illustrates total profit by type and the tax owing after allowances; without including laborious details that went into the calculations of profits.
The tax year overview, on the other hand, is an accounting of balances owed. It shows your tax position as liabilities owed to HRMC, upcoming payments and penalties for late or overdue payments and how much of any bill is still due.
So you must provide both sets of documents where requested, as one evidences your income, the other your tax owing and payment history.
The process to get an SA302 depends on how you submit self-assessment returns.
How to get an SA302 and Tax Year Overview if you use an accountant or file postal self-assessment returns
If you use an accountant or file by post, you may not have access to HMRC online, which is usually the quickest way to get these documents. If you have never accessed your self-assessment returns via HMRC online, you should call HMRC in the first instance.
The telephone system provided by HRMC recognises the term SA302 and will generate and post these to you automatically with tax year overviews.
But the postal SA302s and tax year overviews can take up to two weeks to arrive (excluding any strike actions or seasonal delays).
So you should also contact your accountant and see if they can provide them faster. Most accountants’ software can generate something equivalent to SA302s, acceptable to most lenders, and accountants should be able to download tax year overviews from HRMC directly.
How to get an SA302 and tax year overviews if you submit self-assessment returns online
You can view and print up to 4 years of tax calculations using the steps below.
To download the SA302s
- Log in to your online account at https://www.gov.uk/log-in-register-hmrc-online-services. *
- You arrive at a splash page with several options below your name and tax reference number. Select ‘self assessment’.
- Select the link titled ‘view your payments’
- Follow the sidebar link titled ‘tax return options’ (at the bottom of the page for mobile users).
- Choose the year from the drop-down menu and click ‘Go’.
- Select the button titled ‘view return’.
- Follow the link ‘view calculation’ from the sidebar navigation menu (at the bottom of the page for mobile users).
- Follow the link ‘view and print your calculation’ at the bottom of the page.
- Select the button titled ‘Print your full calculation’ at the bottom of the page.
- Change the printer setting to “save as PDF”.
- Save the file somewhere on your machine.
- Use the back button on your browser to return to the tax return options page, and repeat the process to download three full years (or as many as you have, if less).
To download the tax year overviews
- Log in to your online account at https://www.gov.uk/log-in-register-hmrc-online-services. *
- You arrive at a splash page with several options below your name and tax reference number. Select ‘self assessment’.
- Select the link titled ‘view your payments’.
- Select ‘tax years’ from the sidebar-navigation menu (at the bottom of the page for mobile users).
- Choose the year from the drop-down menu and click ‘Go’.
- Follow the link ‘print your Tax Year Overview’.
- Change the printer setting to “save as PDF”.
- Save the file somewhere on your machine.
- select cancel from the print menu, and repeat the process for the remaining tax year overviews.
* We cannot be held responsible for the content of this external website.
Question; I want to buy a property and let a room or several rooms out; is this a buy-to-let?
There are two aspects to this question; legally, any property where you, or your direct family members, occupy more than 40% of the habitable space is considered a regulated residential mortgage.
So, a buy-to-let mortgage usually precludes you or a family member from occupying the home. Except for a limited number of “regulated buy-to-let” products, which only have niche uses.
These buy-to-let products are rarely preferable as most residential lenders allow you to take a lodger or two, subject to certain limitations, and are generally less expensive.
It is vital to check with your lender if they allow lodgers, as some won’t. But most require that lodgers occupy the home as a friend and don’t have a self-contained unit like a granny annexe, although a small lock on a bedroom door is unlikely to be a big problem.
Lenders often request that no formal tenancy agreement is in place and that the lodger signs a “consent to mortgage form”. These are important to limit the lodger gaining complex legal rights to remain in the property, even in a non-payment dispute.
Where this gets confusing; is reading your mortgage offer conditions which usually state that subletting is prohibited!
This likely refers to precisely that point; making a formal tenancy agreement with a lodger can grant them rights that are prejudicial to you as the homeowner: and the mortgage lender if they ever had to repossess.
If you want to let a self-contained unit like a granny annexe, particularly with a formal tenancy; there are now lenders who will allow this, though they are few and far between with most still refusing this type of arrangement. But we can help you arrange a mortgage for letting an annexe using lenders that range from the very competitive end of the market upwards.
If you want to purchase or part-occupy a multi-unit block (a block with several self-contained flats) then this is possible, but there are very few lenders entertaining these transactions; you will benefit from using a mortgage adviser as most of those lenders will only offer products through qualified brokers.
These are the legal aspects relating to the mortgage conditions; the second part of the question relates to health & safety, local planning bylaws, protections for tenants and insurance.
At any point where you take a lodger, it will be your responsibility to ensure that you comply with any by-laws regarding letting in your locality, which may include local licensing schemes.
You might need to get regular gas safety inspections or take alternate home insurance.
Where multiple lodgers reside with you: this may fall under requirements for houses of multiple occupation or “HMO” licensing, which can involve requirements around fire protection and electrical installations, among others.
It is vital to take all these aspects seriously. Failure to comply with HMO licensing can incur fines in the tens of thousands of pounds, and the rules are well enforced. Breaching your mortgage conditions could result in the repossession of a property.
And finally, for those in a leasehold property, you need to ensure the terms of your lease do not prohibit you from taking a lodger or sub-letting. Breaching your lease agreements can again end in repossession.
If you need help with any of these types of transactions, contact us for more information.
