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Why mortgages for lawyers are not an open and shut case

by: Chris Lloyd, associate director at Enness
  • 30/08/2017
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Why mortgages for lawyers are not an open and shut case
Continuing his series examining trickier scenarios when finding mortgages for professionals with unusual incomes, Chris Lloyd considers why mortgages for lawyers can be complicated.

Life as a lawyer often entails a high-stress environment and long working hours. However, lawyers can generally expect to earn a good salary in return.

Generally, we assume a large salary makes it easier to get a mortgage on your dream property.

Unfortunately, lawyers are a prime example of high-earning professionals who struggle to secure mortgages on the high street — and the further up the ranks you go, the more complicated it becomes.

This isn’t such an issue at the lower end; solicitors and newly-qualified barristers employed on a PAYE salary should encounter relatively few problems. However, once you are experienced enough to go self-employed, or are made partner in a firm, the situation becomes more complicated.

Equity issues

An equity partner will often have points in a firm, which is akin to having shares. They will then be able to draw their share of company profits, which typically works out at more than a base salary. Equity partners are therefore classed as self-employed.

When a client is self-employed, lenders will generally look to see two- to three-years’ worth of accountants’ records and will take an average of these figures. If your client is a lawyer who has only recently turned self-employed, they may therefore struggle to secure a mortgage with high street lenders despite a stellar employment record, as they will not have two years of records.

Working for a global firm can complicate matters further. Equity partners in global firms will typically take some of their income in foreign currency, and may even pay tax in foreign currency, as this can be more tax efficient. Most high-street lenders will not take foreign currency into account when calculating affordability.

Many lawyers I have worked with earn very big salaries— in the region of £200,000 to £600,000 a year — so it’s most unfortunate that the attitude of high street banks means professionals with incomes like this are unable to secure the mortgages they require.

Not on the high street

Private and specialist lenders can prove a fruitful source in this instance; relationships with such providers give brokers the negotiating power to explain their client’s situation to the lender.

For example, I recently worked with a client who wanted to raise £1.3m on their £2m property in Central London.  My client was an equity partner in a global law firm, and wanted to refinance the property to raise money for extensive home improvements.

The position as an equity partner posed two problems; part of the income was received in dollars, and they had only been an equity partner for one year so the average of the last two years’ salary did not support the level of borrowing required.

Fortunately, I was able to arrange a mortgage at a rate of 1.28%, from a lender who could take foreign income into account, and also use a projection of future earnings to calculate the affordability.

As such, despite the problems faced by lawyers in securing a mortgage, it is possible to achieve excellent results with a good broker and the right lender relationships.

 

Last month Chris Lloyd diagnosed and cured mortgage problems for doctors.

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