10) ASSESSING THE APPLICANT'S FINANCIAL STATUS

Question 1

In the mortg application form, what general information is submitted?

Answer 1

__ Name/s and address/es of applicant/s…2 pcs of id, address history for 3 years at least, current resi status?
__ Nationality and residential status - many lenders normally is UK resident, 9if not, diffi to sue),
Loans to non-resi have spl condns attached
__ Marital status, no and ages of dependants - view of family unit, dept 17yrs or over if not party to mortg will be asked to sign ‘consent to mortg. overriding interests apply to over 18s or more (?)
__ Occupation and nature of employment- temp/perm etc
__Employer’s name and address - to confirm inco and employment
__ Length of time in current employment - prev employer if less than 3 yrs
__ Income details of basic and other income, if bonuses, commissions are considered, an average over 3 yrs is taken usually
__All regular expenditure
__Info on debts, bankruptcy and CCJ - lenders run credit checks, use credit-scoring system

Question 2

What does the lender need to know about the loan reqd?

Answer 2

Loan to value, deposit available, repayment method, bldgs and contents insu reqts, other insu reqts

Question 3

What types of income are taken into account?

Answer 3

1  -  Employment
2  - Self-employment 
3  - Directorship 
4  -  Other secure income - 
        maintenance, pensions 
5  -  Secure trust income

Question 4

How is income from employment assessed?

Answer 4

Employees rec basic + addl inc such as car allowance, location allowance, overtime, commission, other sales-related inc
Stability and lifespan of addl inc taken into acct by showing it is over a regular prd of time.
MCOB req evidence of inc - payslips
If no docu are avai, employer’s ref may be considered - shd be -original, dated recently and clear wrt permanence of employment and inc

Question 5

How is income from self-employment assessed?

Answer 5

Net inc is mostly assessed for affordability, evidence reqd for 2-3 yrs, if shorter busi history, addl criteria may apply

1. Turnover (total income)
2. Gross profit (turnover less cost of raw materials/goods bought for sale)
3. Net income (gross profit less routine busi expenses)

Question 6

How do lenders corroborate income from self-employment?

Answer 6

HMRC tax calculations for 2-3 yrs, by self-assesst showing taxable profit and calcu of IT liability

OR

Accountant’s certi confirming busi inc for past 2-3 yrs, the acctnt a memb of a professional body and holding specified qualificns

OR

Full business accounts for past 3 yrs

Question 7

Income assessment from full set of accounts comprise?

Answer 7

• profit and loss acct (income statement)

- a balance sheet (statement of financl posn)

Question 8

What do profit and loss acct, and balance sheet show when assessing lending?

Answer 8

Profit and loss acc is a record of busi incm and expen for the trading yr, showing figures for gross profit and net profit for that yr

Balance sheet - statement of bus’s assets and lia at the end of the trading yr on one particular day. Assets incl busi premises, vehi, equipt, debtors and the bank balance. Liabilities incl the bal of the capital acct. This gives an indication of the underlying strength of the busi.

Question 9

What is capital account?

Answer 9

• *Remaining capi from establishment of busi
• *AnyFurther capital injected
• *Any surplus profits from previous trading yrs

Question 10

Difference betn how a sole trader and a company director pay income tax

Answer 10

Sole trader pays IT at their highest marginal rates on net profits (whether they take salary or leave it in busi)

Company pays corpn tax on profits after salaries have been paid to employees incl directors (directors can control how pay is distri - rec salary just under limit for NI or IT, and take larger amt as dividends usually quarterly, thus rec NIC for pension but pay less IT on busi earnings than a sole trader)

Question 11

What comprises a director’s pay?

Answer 11

Salary (if employed), dividends and director’s loans

Question 12

What is a director’s capital acct?

What is a director’s loan acct?

Answer 12

A director’s capital account is a record of money owed to the company by participators and of money owed by the company to participators. This could include capital injected by directors to start the company, unpaid wages, the cost of business items supplied personally by a director, as well as straightforward loans between the company and directors.

A close company can lend money to or borrow money from a ‘participator’ in a company, and this is done through a director’s loan account, which is part of the capital account

Question 13

A director’s loan acc has two aspects - what does it mean

1. when direc is in credit
2. when direc is in debit

Answer 13

Direc is in credit when co owes them money eg either for injected capital or for property/equipt that is used for the purpose of the busi

Direc is in debit when they owe money to the company