I need a mortgage reference

Why have we prepared this guide?         
          
The very fact that we have prepared this guide indicates that we get the same recurring questions arising with many clients. The expectation that a mortgage reference is "just a letter" and a routine exercise can unfortunately be an underestimation, and there are often additional tasks that arise from the bank as part of their investigation into your finances.          
          
Why have I been asked to get my accountant to write me a mortgage reference?         

When self employed, the financial institution lending you the money are likely to require a reference from your accountant to confirm "the figures".          

As your accountant knows your business and is in a position of authority to give accurate information, they are usually the first point of contact.          
          

What is involved with preparing a mortgage reference?         
          
The usual things a lender wants us to confirm are:

• Length of trading   
• Length of our relationship with you as our client
• 3 years financial figures, usually to include;           
•  income    
•  profit    
•  drawings  
•  salaries of business owners    
•  reasons for any fluctuations or deviations in profit 
•  forecasted  income and profit (in many cases)  

Please note the required information does change in each case. 
          
     
How long will it take to prepare a mortgage reference?         

Unfortunately it is not, as mentioned above, just the case of re-listing a previously-prepared letter.         
However we understand the importance of the process and we aim to complete the mortgage reference withing 48 hours, if they do not require forecasted figures. Exact time does vary depending on the exact format and information requested.          
          

My accounts and bookkeeping are not up-to-date. Is this a problem?         

The mortgage company are very likely to require 3 years of recent accounts. By "recent", we are talking with a year-end within the last 6 months. In additon to this, they may still require some kind of management information (draft figures) to date and / or the forecasted figures. In an ideal situation, you would have up-to-date bookkeeping on a good system, where data is easy to extract should the need arise.          
          
          
Next year I am going to work really hard so will earn twice as much. Can you amend the past figures on my reference so I can increase my loan?         
          
With the reference, we can only disclose information that we believe is accurate to the best of our knowledge. With historical data, this is straightforward as we would have prepared the          
financial statements. When it comes to predicting future earnings we have to assess them to ensure they are realistic and achievable. We cannot amend historical data but we are able to be more flexible when forecasting as long as we have quantified any fluctuations in levels of activity in your business and believe it to be accurate.          
          
What is the cost of a mortgage reference?        
          
We charge a standard fee of £50 plus VAT for the administration of the first mortgage reference. This is to simply collate the information required into the requested format. We appreciate the speed at which mortgage references need to be delivered and this simply covers our costs and the interruption to our planned work schedule.          
          

How long do forecasted figures take to prepare?         

If your mortgage company or bank specifically require forecasted figures, it will take longer to prepare. We initially summarise the historical data and estimate what we can in terms of expenses. It will require your input to tell us whether your income is expected to rise or fall in the coming year, with reasons to qualify this. If details of income and expenses are available for part of a financial year, we often request these so we get as accurate picture as possible. At a rough estimate, we are talking one week for a forecasted profit and loss, subject to information being readily available.          
          
          
What is the cost of preparing forecasted figures should I need them?         
          
Forecasted figures are extra and will need to be confirmed by your account manager at the time of processing.             
         

The mortgage company are querying the first reference provided. Why?         
          
The administrators within mortgage companies are not accountants so they rarely understand the detail of  financial information provided, hence why it often needs further explanation          
 from a professional.  Lenders assess everything in terms of risk so depending on other factors that make up your case so their attention can vary on different cases.  In this current market, risk is assessed to a greater level than perhaps in previous years.          
          
          
Are there extra costs involved?         

The writing of the reference is often not the end of our input.         

The administrators within mortgage companies are not accountants and tax advisors and all too frequently come back to us with questions and requesting more detail. This naturally incurs extra time and costs from us. Our time for any further correspondence and phone calls is charged on an hourly basis.          
          
          
I trade as a limited company. Could this be an issue?            

In short, yes, but it shouldn't be! Again, due to the processing systems there is frequent mis-understanding regarding how directors of companies receive their income, (usually split between salary and dividends), which can cause an issue when applying for finance. However, this kind of structure is not unusual for the many thousands of business owners like yourself who have a small limited company, and it is simply a lack of understanding.         
          
          
The mortgage company are asking for a specific form from HMRC. What is this?         
          

Occasionally, the mortgage company will request a form from another third party as evidence.  Unfortunately, with the advent of online filing the Revenue rarely issue such paper forms these days so we don't know why the mortgage companies have not figured this out.          
          

Summary        
          
The mortgage company are lending you money and, regrettably, these days it is not an automatic task to obtain such funds.          
We will do our very best to assist you along the way but we are ultimately bound by our Institute's rules and regulations. We also have to look at the time we spend dealing with your mortgage application from a commercial angle and pass on a fee to you as we progress. Hopefully, the end result will be worth the investment as unfortunately and we wish you the very best.          
          
WE HOPE YOU FOUND THIS ARTICLE USEFUL          
          
For information on our specialist accountancy service for chiropractors, please call us on         
 T: 01872 242800   
 E: support@finance4chiropractors.com

          
NEED MORTGAGE ADVICE - why not contact our Independent Mortgage Advisor, Jeremy Squibb?          
 T: 01872 242800
 E: mortgages@finance4chiropractors.com