6. Applications: Assessment of Status Flashcards
Who must an assessment of affordability be carried out on?
Applicants and guarantors
What may be considered as applicants income?
Salary
Overtime
Bonus/Commission
Trust income
Maintenance payments
State benefits
What will a lender prepare to assess affordability?
An income/expenditure projection for the household
What are the two types of expenditure
Committed - Has to be met irrespective of financial circumstance
Discretionary - Can be put aside temporarily or permanently
What will lenders generally encourage or insist relating to mortgage repayment?
Automated process ie. Direct Debit
What do lenders tend to use to support their decisions on affordability?
Credit Scoring Systems
Other than salaried employees, what else must the lending criteria cover?
Self Employed
Limited companies
Unincorporated Businesses
What are some approaches to consider overtime/sales based earnings?
Include them all
Include a set %
Take the lowest figure of the last 3 years
Average of the last 3 years
Exclude entirely
What is the net profit of a trader who deals with physical goods
Sales - costs of goods - less overheads (expenditure incurred ie. admin/travel)
Why do sole traders/partnerships present a greater risk to lenders?
Volatile income
Seasonal cash flow
Being paid on time
If a trader is consistently taking more from the business than it is earning, what could this mean for the application?
It MAY be declined or may simply prompt more questions and a more in depth analysis.
In relation to limited companies, owners may sometimes be paid a salary by them. Would this be used to assess borrowing capability?
Sometimes, they could otherwise assess the annual net profit of the company.
Lenders may look at how the applicant earns their living, why is this?
To assume permanency of income
How many hours per week must an employee be contracted in order to benefit significantly from employment law after 1 year
16 hours
Over what % of employees in the UK are paid via the BACS system?
70%
