We are often asked to assist clients with mortgage lending references.
These requests can come directly from the lender, via a mortgage broker, or from the client themselves and very often they can be a cause of consternation with the lender in terms of the type of information we are able to provide.
A mortgage reference will usually ask us to confirm that we act for the client, confirm the period for which we have acted, and in relation to the accounts of the business to confirm details relating to income, business profits and salary levels of the business owners. The reference will also very often ask us to provide projections or estimates for those periods where accounts are not available or for future periods.
The issue that arises is that as a firm of Chartered Accountants, we operate under the rules of the Institute of Chartered Accountants for England and Wales (ICAEW), which specifically preclude us from providing anything except factual information in response to such requests. We are also restricted in relation to provision of information of this kind by our professional indemnity insurers. This is because of the risk to the firm of the information being used to support a lending decision, and the potential for us to be contractually obligated if the lending provided is not subsequently repaid.
This is also the reason that, like all ICAEW member firms, we no longer charge for mortgage reference requests.
Before we consider what we can and can’t provide, it is also worth noting that we can only respond to a formal request from the lender themselves. This should be in writing and addressed specifically to the firm. If a mortgage broker makes a general request for a reference to hold on file, ‘just in case’, we would be unable to provide a response in that case, the reference needs to relate to a specific application to a specific lender.
In limited cases it might be appropriate for us to refuse to provide a reference at all and for new clients it may be inappropriate for us to provide a reference relating to periods where we have not acted for them.
So what can we provide?
- A letter providing factual information relating to accounting periods where the accounts have been completed and submitted to HMRC by ourselves
- Factual information relating to business ownership
- Details of the dates we have acted for the client
- Details of the dates the business commenced trading (if known)
- A limited opinion ‘that in our experience we would have no reason to suppose the client would enter into an agreement which they were not able to fulfill’
What can’t we provide?
- Opinions on the future of the business
- Confirmation of future earnings
In accordance with ICAEW guidance, we can provide much of the information required using our own templates and wording, in the form of a letter addressed to the lender on our letterhead. We are unable to complete lenders’ certificates or other standard forms.
We will always work with our clients and the lenders concerned to try and reach a solution to any issues in relation to the provision of mortgage references. Lenders may claim that other firms are happy to provide this information ‘why are you being obstructive!’, but this is not the case for any firm operating under the rules of the ICAEW.
An example of the type of letter we can provide is as follows:
To [Name and address of lender]
Dear Sir / Madam
REFERENCE IN CONNECTION WITH THE LENDING APPLICATION MADE BY [Name of client
and application reference, as appropriate]
Our above named client has approached us for a reference in connection with the proposed loan
by you of £… [repayable by monthly instalments of £… over … years].
We have acted in connection with our client’s [personal / business / corporate tax] affairs since
[date]. However, it should be noted that our knowledge of our client’s affairs may not be fully up to
date. In addition, we have not carried out any specific work with regard to this statement.
[Our client’s net income declared by our client to HM Revenue & Customs as at 5 April 20..
amounted to £…
Whilst we have no reason to believe that our client would enter into a commitment such as that
proposed which our client did not expect to be able to fulfil, we can make no assessment of our
client’s continuing income or future outgoings, or ability to fulfil their commitments to you.
Whilst the information provided above is believed to be true, it is provided without acceptance by
[name of firm / signatory] of any responsibility whatsoever, and any use you wish to make of the
information is, therefore, entirely at your own risk.