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.