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    • lollypink
    • By lollypink 13th Jul 17, 5:15 PM
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    lollypink
    self employed mortage worries
    • #1
    • 13th Jul 17, 5:15 PM
    self employed mortage worries 13th Jul 17 at 5:15 PM
    hi all,

    wondered if you can offer any advice,

    have recently applied for Mortage with Coventry BS, I have one myself already and looking to port the mortgage to new house and make it joint one with my partner. We are both self employed, she is a sole trader and I am sole director of limited company.

    We are hoping for mortgage of £240k on house that had offer accepted at £290k we have £50k deposit.

    I haven't missed a payment of my current mortgage my credit file is excellent and so is my partners. However I know the bank see self employed as a massive risk.

    My partners last two years income as sole trader were around 18k and mine were 42k in 2014/2015, 34k in 2015/16 and 71k 2016/17.


    However I keep all the money in my business bank account (which usually has around 40k in it ) and only pay myself a minimum, so now I'm concerned that it looks like I don't have enough in my personal account to pay the new mortgage, I literally just pay myself enough to cover my bills. I am also embarrassed to say that I went over my overdraft twice in two months, I put money in the same day to cover but I am aware that it looks really bad to mortgage companies. I have since paid my overdraft off.

    We are waiting for CBS to do the valuation but aren't hopeful that we will get an offer. Is there any point to going to see whole of the market broker or should I just pull out of the house purchase and have three months of putting a salary from my business into my personal account and then try again - my bank account will obviously look healthier then

    Any thoughts welcomed x
Page 1
    • AdrianC
    • By AdrianC 13th Jul 17, 5:41 PM
    • 14,789 Posts
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    AdrianC
    • #2
    • 13th Jul 17, 5:41 PM
    • #2
    • 13th Jul 17, 5:41 PM
    I am sole director of limited company.


    mine were 42k in 2014/2015, 34k in 2015/16 and 71k 2016/17.

    However I keep all the money in my business bank account (which usually has around 40k in it ) and only pay myself a minimum
    I literally just pay myself enough to cover my bills.
    Originally posted by lollypink
    Umm, while it's in the business account, it's not your money. It only becomes your money when you pay it to yourself.

    If you're getting round income tax by only paying yourself a very small amount of money then you aren't earning £70k. The company might have made a £70k profit before staff costs, but that's very different to you earning £70k.

    So, no, the lender won't regard the whole lot as your earnings for borrowing purposes - simply because they AREN'T your earnings.

    If you're paying yourself as dividends rather than salary, then they might take that into account - but you really will need to talk to them. They're certainly going to see through something as transparent as three months of unusual payments.
    Last edited by AdrianC; 13-07-2017 at 5:43 PM.
    • lollypink
    • By lollypink 13th Jul 17, 5:53 PM
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    lollypink
    • #3
    • 13th Jul 17, 5:53 PM
    • #3
    • 13th Jul 17, 5:53 PM
    Hi

    thanks for your reply.

    Im not avading any tax, I choose to draw the income in dividends but I havent drawn it because I havent needed to.

    The turnover of the company is £180k the profit is £71k for this year, made up of salary and dividends.
    • pretamang
    • By pretamang 13th Jul 17, 5:58 PM
    • 44 Posts
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    pretamang
    • #4
    • 13th Jul 17, 5:58 PM
    • #4
    • 13th Jul 17, 5:58 PM
    Do you have an accountant?

    It might help if they write a letter to set-out how you business works and that your current salary/dividend does not reflect the amount that you have available for mortgage affordability.

    Do you have a broker?

    Coventry might not be interested in your Ltd company or what your accountant has to say and only look at what you have actually taken. There are lenders out there that do consider business assets, a good broker could identify them and find the best mortgage for your situation.
    • lollypink
    • By lollypink 13th Jul 17, 6:00 PM
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    lollypink
    • #5
    • 13th Jul 17, 6:00 PM
    • #5
    • 13th Jul 17, 6:00 PM
    yes i have an accountant , she has completed the accountants certificate they requested.

    I do know a broker but I had hoped it go with CBS since I have fees if I come out my current mortgage.

    Im just so annoyed with myself I didnt pay myself more !!
    • AdrianC
    • By AdrianC 13th Jul 17, 6:02 PM
    • 14,789 Posts
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    AdrianC
    • #6
    • 13th Jul 17, 6:02 PM
    • #6
    • 13th Jul 17, 6:02 PM
    Im not avading any tax, I choose to draw the income in dividends but I havent drawn it because I havent needed to.
    Originally posted by lollypink
    And you do that because... you pay less tax that way, right?

    The turnover of the company is £180k the profit is £71k for this year, made up of salary and dividends.
    Umm, I'm not sure "profit" works the way you think it does.
    The company is not you. The company's money is not your money. The company's profit is not your income.

    The company's money becomes your income only when the company pays it to you.
    Salary is taken out before profit is calculated, and income tax is paid on it.
    Dividend is declared from profit, after the company pays corp tax, then income tax is paid on it.

    Your accountant should be able to explain it in more detail, from your actual figures.
    • lollypink
    • By lollypink 13th Jul 17, 6:17 PM
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    lollypink
    • #7
    • 13th Jul 17, 6:17 PM
    • #7
    • 13th Jul 17, 6:17 PM
    I understand that yes I have paid corporation tax and income tax on the dividends for the last three years.

    I just didnt realise I needed to put it into my personal account.
    • AdrianC
    • By AdrianC 13th Jul 17, 6:19 PM
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    AdrianC
    • #8
    • 13th Jul 17, 6:19 PM
    • #8
    • 13th Jul 17, 6:19 PM
    I understand that yes I have paid corporation tax and income tax on the dividends for the last three years.

    I just didnt realise I needed to put it into my personal account.
    Originally posted by lollypink
    Hold on a sec... Are you declaring dividends and/or paying salary through the books, then leaving it in the company account?
    • lollypink
    • By lollypink 13th Jul 17, 6:21 PM
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    lollypink
    • #9
    • 13th Jul 17, 6:21 PM
    • #9
    • 13th Jul 17, 6:21 PM
    yeh is that completely stupid of me?
    • AdrianC
    • By AdrianC 13th Jul 17, 6:28 PM
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    AdrianC
    yeh is that completely stupid of me?
    Originally posted by lollypink
    Are you declaring it as a director's loan?
    How else are you reconciling the account?
    • lollypink
    • By lollypink 13th Jul 17, 6:41 PM
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    lollypink
    im not sure? My end of year was june just gone so do you think I should draw the dividend? If so wont it look dodgy that I have just drawn it right before we apply for a mortage ?

    I think I need to get a better accountant!
    • Pixie5740
    • By Pixie5740 13th Jul 17, 6:46 PM
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    Pixie5740
    If you get knocked back by CBS then approach and independent mortgage broker to discuss your options. Just because one lender might not like you doesn't mean that another wouldn't gladly take your business.
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
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