Refinancing for Property Renovation: Self-Employed Client with Challenging Credit

• Client: Couple with self-employed and salaried income
• Property: Residential property valued at approximately £1.25 million
• Challenge: Required equity release for renovations while managing self-employed income and an adverse credit history
• Finance: £857,500 refinancing at 68.6% LTV, fixed at 3.99% for two years

Refinancing can become more challenging where a borrower is self-employed and has a complex credit history. Enness was approached by a couple looking to refinance their existing home and release equity to fund a programme of renovations.

The property was valued at approximately £1.25 million, with the clients looking to raise £857,500. This represented a loan to value (LTV) of 68.6%.

The clients had originally considered purchasing a new property but decided that adapting their existing home would better suit their future requirements. The proposed renovations would improve the property and potentially increase its value, creating the possibility of refinancing onto more traditional terms once the works were complete.

The application presented several challenges. One of the clients was a self-employed IT specialist whose income was based partly on their day rate. This can make affordability assessments more complicated, as lenders may place greater emphasis on historic income figures rather than the value of current or future contracts.

The other applicant was a salaried medical professional, providing an additional source of household income. However, the application also involved a relatively poor historical credit profile and a CIFAS marker on the self-employed applicant’s credit file. The marker had followed an investigation relating to alleged fraudulent activity, although the client had been cleared by the police and no further action was taken.

Because the marker was still present on the credit file, a number of mainstream lenders were unlikely to consider the application. The combination of self-employed income, adverse credit and a relatively high LTV meant that the case required a lender willing to take a broader view of the clients’ circumstances.

Enness therefore approached specialist lenders with experience of working with self-employed borrowers and applicants with adverse credit histories. The application was presented with supporting evidence demonstrating that the client had no involvement in the alleged fraud and that the marker was expected to expire within two years.

The selected lender was also comfortable assessing the client’s contracting income and considering their day rate alongside the wider household income. This allowed Enness to secure the required level of funding despite the additional credit considerations.

Following negotiations, Enness secured £857,500 of refinancing against the £1.25 million property, representing 68.6% LTV. The facility was arranged at a fixed rate of 3.99% for two years.

The short-term structure provided a route through the immediate lending challenge while giving the clients time to complete their planned renovations and for the CIFAS marker to expire. Once the property improvements were complete, the enhanced value could potentially support a future refinancing onto more conventional terms, subject to the clients’ circumstances and lender criteria.

The case demonstrates how remortgage finance can be structured for borrowers with self-employed income and challenging credit histories. Where mainstream lenders are unable to accommodate an application, specialist lenders may be able to consider the wider circumstances and available evidence.

For clients looking to release equity for property improvements, specialist equity release expertise can help identify suitable lending structures based on the property value, income profile, credit history and intended use of funds.

Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. Finance is subject to status, underwriting, affordability, valuation, property suitability and lender criteria. Terms, rates, LTVs, fees and availability may vary depending on individual circumstances.

Risk Warning:
Your property may be repossessed if you do not keep up repayments on your mortgage or other borrowing secured against it. Property values can fall as well as rise. Releasing equity increases the amount secured against your property and may increase the overall cost of borrowing. Borrowers with adverse credit may also face higher borrowing costs or more restrictive lending terms.