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.
Last edited 08/08/2022