Sometimes a business owner will look to regularly re-invest in their companies, in order for them to continue their growth. In these periods of growth, they don’t always pay themselves the amount that they should, which in turn can make getting a mortgage difficult.
For self-employed applicants who are in a similar situation to this, there is self employed mortgage advice in Essex available, especially for those who believe that this case study represents their current circumstances.
Darren was an HGV driver who had previously been made redundant and decided that, of all things, he fancied starting a career in the crafting industry, after spotting a gap in the market. He sold his family home and moved in with his in-laws, along with his wife and children, setting up shop from the garage.
He used the funds from his redundancy pay, as well as the proceeds from the sale of their home, to buy some stock and take his first steps into self-employment. Things were going well, and within a few years, the business was successfully making a small profit.
Darren and his family cut back on things they didn’t need, in order to reduce their outgoings and leave more funds to put into the business, helping it to grow. Luckily they didn’t have any rent or a mortgage to pay each month, and Darren was only paying himself a minimal salary that was in-line with the annual tax-free allowance.
Fast forwarding 3 or 4 years into the future and the business now had a physical location and was making almost £100,000 net profit. Still, with the mindset of keeping expenditure to a minimum, Darren continued not to pay himself properly.
The time came to buy a new family home, but his bank would only lend him £40,000 for a mortgage, which is when he got in touch with us.
Darren’s bank had let him down because, despite the profits that were being made in the business, he was only paying himself £10,000. He and his family could just about live without drawing a dividend from his Limited Company.
Unfortunately, the majority of high street mortgage lenders (excluding a few who will use different methods) only assess affordability based on your declared earnings. In any case, this is typically salary plus dividends, averaged over two years. In Darren’s case, it was salary alone.
We managed to find a mortgage lender who was willing to assess Darren’s profits in a completely different way. This mortgage lender took into account his “retained profits” and did not penalize him for his choice to limit his earnings.
Thankfully this mortgage lender was also not interested in the fact Darren was not drawing out an unnecessary dividend from his Limited company and agreed to lend him up to £400,000 (this wasn’t how much Darren was looking to borrow, just the maximum they were willing to go).
Darren was not a self-employed applicant looking to take out a self-employed mortgage in Essex while simultaneously seeking to minimize the amount of tax he paid aggressively. He made personal sacrifices in terms of income to grow a business from scratch.
He believed that his bank had no interest in hearing the full story about how his limited company had grown and took a narrow-minded view of his financial situation, based on the income he had declared to the Inland Revenue.
We had managed to find him a mortgage lender who was much, much more understanding in their viewpoint, leading Darren and his family back to where they belong; in a family home that they can call their own.
To summarise, we had a customer many years ago who had sold his house and moved back into the family home in order to start up his business.
They made a great deal of sacrifices personally in order to grow his business, and within a few years, the company was starting to show good profits. He kept his expenditure low and kept re-investing in his Limited Company.
He had a really solid with a six-figure profit, but hardly any declared income because of his self-inflicted choice of lifestyle. Surely this is the kind of savvy businessman all mortgage lenders should be considering (low LTV case too)?
If you are in a position that is similar to Darren’s or are a self-employed applicant who is looking to take out a self-employed mortgage at some point in the future, needing self employed mortgage advice in Essex, please book online and speak to us today.
Sometimes there needs to be a lot of forward thinking in order to take out a self-employed mortgage in Essex, and we are happy to help you out with this.
Annabel contacted us looking for her first mortgage, buying with her partner. She had a clean credit history and a healthy deposit courtesy partly of an inheritance from her late grandma.
Annabel was a post-graduate, and when we first spoke, she was in the process of interviewing for her first job. She had two job offers on the table – one was for a permanent position, so getting a mortgage on that would have been no issues whatsoever. However, she also had another interview lined up for a role that would only offer her an initial 12-month contract.
Getting a mortgage for a contractor is no problem at all if the applicant can demonstrate at least 12 months’ history, but in Annabel’s case with it being her first job she wasn’t able to evidence that.
She didn’t want to take the permanent employed role but got torn because it was of equal importance to her (and her partner) to get onto the property ladder and she knew it would be more comfortable that way.
I was able to present Annabel with two High Street lender options: firstly, we had access to a lender who would grant her a mortgage on her first contract as long as there was 12 months’ remaining on it. It was a very narrow window of opportunity for her because immediately after the job commenced. Then there would be less than 12 months remaining which would push the case outside of criteria.
There was also a second lender who would grant her a mortgage on a first contract but only after she had been in the job for three months. Annabel started the career (which she loved) and after 3 months re-contacted me to ask if the mortgage was still available. It was, and now the clock started ticking again as she and her partner had a further 3 months to find a suitable property always to meet the “6 months’ remaining” element of the lender’s criteria.
Luckily the had kept their eyes on the market and made an offer, sent all their documents over which included three months’ payslips for Annabel and a copy of the contract to evidence there were>6 months remaining on the deal. The mortgage offer was swiftly produced at a competitive rate of interest, and indeed by a stroke of good fortune, it happened to be the cheapest mortgage deal on the market at that time.
Many people like the idea of creating a property portfolio to fund their retirement.
Not everyone is a fan of pension plans but they do understand the property, I know that over the past 20 or 30 years it has been a sound long term investment despite the peaks and troughs.
In this case study, we look at one way we helped a client take her first step on the road to being a Landlord.
Amy is a self-employed mum of two, who is a Director of two small businesses. She and her partner had a fair amount of equity in their home and were interested in raising some capital to buy a low value buy to let property, possibly at auction.
Amy felt there were bargains to be had at auctions, but she never had enough money to attend and be a cash buyer.
She had looked at Remortgaging her house in Essex for this purpose before but had been told it wasn’t possible unless they could provide an address for the onward property they wanted to purchase – the proverbial “chicken and egg” scenario.
Amy also mentioned that once or twice a year, she received a dividend in the region of £3000 from one of the companies she was a sleeping partner in, and she has been prone to wasting some of that cash when it arrived perhaps unexpectedly.
I could tell that Amy was a very busy person but also an astute businesswoman. The dividends she received could surely be put to better use as she never had it earmarked for anything specific.
I recommended an offset Remortgage in Essex for Amy and her partner secured on their home.
I found a Lender who was happy to release funds on completion to be assigned to a future buy to let purchase without insisting on a specific property.
Amy simply deposited the additional funds into the offset savings account that comes as part of the mortgage, and these monies simply sit there until she needs them.
The offset savings accounts do not attract interest but instead is offset against the mortgage balance.
To clarify, Amy had £85,000 surplus funds from a total remortgage of £215,000. While the money is in the savings account, Amy only pays mortgage interest on the £130,000 difference between the two figures.
The £85,000 is on instant access and was available whenever she needed it
Three months after completion Amy identified a suitable property that was in a state of disrepair. It was probably not mortgageable itself but of course, Amy had access to liquid funds to buy the house outright.
Amy secured the property at a knock-down price of £55,000 but this amount needed to rise to a total of £70,000 to fund legal costs and a refurbishment program of works.
A further nine months went by and with the works all done Amy had no trouble finding a tenant. The house was now worth £90,000 and we raised a remortgage of £67,500 against it to fund the purchase of property number two.
Amy has no intention of becoming a full-time Landlord but she can now see a way forward to owning three or maybe even four properties in the future to fund her planned retirement lifestyle.
She loves the flexibility that her offset mortgage brings and whilst she still “squanders” some of her dividend which is her right to do, without fail half of it at least is deposited back into her offset savings account, her money working “for her” to reduce the total amount of interest repayable.
If you are interested in offset mortgages or building your own investment property portfolio please get in touch and we’ll be happy to assist you.