(Another) Ltd Co director needing a mortgage

TheWheelMan

Hi all

I've just read the thread started by vlevans on same subject. My circumstances are a little different so I thought I'd avoid contaminating that thread with my plea for advice and start a new one.

First, I haven't found a house I want to buy let alone applied for a mortgage yet, but would like to understand how the land lies before I start the process.

My wife and I are the joint and only shareholders in the company we started in 2006. We sold our house to fund the company and have lived in rented accommodation since. My wife desperately wants us to have our 'own' home again!

The company was loss-making in 06/07, 07/08 and 08/09, turned its first profit (just over £13,000 but virtually zero after director's salaries paid) in 09/10, and I'm expecting 10/11 profit to be £64,000 on turnover of £240,000. Company year ended on 31 May, currently awaiting preparation of accounts to confirm my estimates.

Turnover has doubled in each year since startup and continues to grow despite the tough economy. I'm expecting at least 25% increase in turnover for 2011/12 which which would give a 60% increase in profit.

Apart from the £6,000 odd each we pay ourselves in salary, everything else we draw from the company is a repayment of the money we put in at the start (and will continue to be so for some time). In 2010/11 we repaid ourselves £55,000 from the company.

Our credit record is absolutely flawless, we were mortgage payers for 27 years up to 2006 and never missed a payment, nor have we ever missed a payment on any other kind of credit.

Does anyone know if there are lenders who will look flexibly at our circumstances and the company's trading record, rather than just taking an income multiple of the minimal salaries we have taken?

And will they take into account the fact that our income is derived from debt repayments to us from the company rather than from dividends?

Any advice and/or observations from anyone with inside knowledge would be greatly appreciated.

BoGoF

Unfortunately you will end up paying the price for tax [STRIKE]dodgers[/STRIKE], cough I mean 'efficient'

foreversummer

Hubby and I are Directors of a Limited Company. You really need to seek out a good Whole of Market Mortgage Broker who will now which lenders to approach. Much better than to contact lenders directly.

Ask around for word of mouth recommendations.

Foreversummer

holly_hobby

My advice would be in the first instance to get your books for 10/11 signed off and finalised.

I am not sure how an underwriter will view some of your income coming from repayment of the "loan" or start up capital you injected into the business. (of was the injection made in the loss yrs to keep the co afloat ?)

Traditionally mortgages are based on earned i.e taxed income - so they may disregard the repayment of capital to you from any calculations.

In my opinion they will also want to see 2 yrs of profit (as opposed to going on your first year of profit for 2010/11 books & a projection/accountants letter). I say this as there have been several yrs of consistent loss. Is the loss yrs attributal to business start up (i.e gaining clients, brand awareness, market share etc) - or was it this and/or poor trading ?

Of course your LTV will play a part too (i.e if its getting up the 75% and beyond I don't hold much hope).

Your historical mge record being from 2006 will probably not have much bearing, as one you were employed and two your personal and financial circs have changed completely. But you could consider approaching your previous lender - as they have a historical relationship with you, they may be more accomodating than a lender who doesn't know you from Adam.

Sorry, I can't be more positive ... it really hinges on a really good LTV and a lender that will be happy to accept 1 yr proven profit from 4/5 yrs of trading ...

So, speak to your accountant (if you use one) he will probably have FS contacts who may be able to help, or go directly (as stated above) to an experienced whole of maket broker who may be able to use their contacts to get this through.

You say you had a mge for 27 yrs and an unblemished credit record - so use institutions you have or have had a financial relationship with - your ex -mge lender, your banker etc ... I know its scratching around but the odds (at this moment) I feel are a bit stacked against you.

Once you have 2 yrs of proven profit, I feel that the market and options will open up to you - but as it stands it will be difficult to place .... but I would love to be proven wrong and hope you find someone !!

Hope this helps

Holly

TheWheelMan

Thanks Holly & foreversummer.

Holly,

My advice would be in the first instance to get your books for 10/11 signed off and finalised.

I do intend to do that; one question on this, I have read elsewhere that to be acceptable the accounts need to be prepared by a Chartered Accountant. Is this true, as mine isn't?!

I am not sure how an underwriter will view some of your income coming from repayment of the "loan" or start up capital you injected into the business. (of was the injection made in the loss yrs to keep the co afloat ?)

It was start up capital. See below.

In my opinion they will also want to see 2 yrs of profit (as opposed to going on your first year of profit for 2010/11 books & a projection/accountants letter).

Well we do kind of have that, its just that in 09/10 we paid most of it to ourselves as salary! Do you think that that won't count for anything?

I say this as there have been several yrs of consistent loss. Is the loss yrs attributal to business start up (i.e gaining clients, brand awareness, market share etc) - or was it this and/or poor trading ?

The business has done very well, starting from scratch, acquiring premises, lots of capex on equipment & setup. Marketing and acquiring customers from a standing start, turnover has doubled every year, it just took 3 years (pretty much as expected) to reach critical mass. But in the current mortgage climate I don't know whether anyone will take any notice of the growth story.

Of course your LTV will play a part too (i.e if its getting up the 75% and beyond I don't hold much hope).

I had figured as much but this was one of the things I needed advice on, so thanks.

Your historical mge record being from 2006 will probably not have much bearing, as one you were employed and two your personal and financial circs have changed completely. But you could consider approaching your previous lender - as they have a historical relationship with you, they may be more accomodating than a lender who doesn't know you from Adam.

Mortgage until 2006 was with the Woolwich, now subsumed by Barclays. Unfortunately I've already been told by the mortgage manager in the local branch that they will only take account of declared taxable income! btw from 2001 to 2006 I was self-employed (same type of business but smaller scale and in a different part of the country) so I do have 5 years of payment history whilst self-employed, although the mortgage was granted whilst I was in employment.

So, speak to your accountant (if you use one) he will probably have FS contacts who may be able to help, or go directly (as stated above) to an experienced whole of maket broker who may be able to use their contacts to get this through.

Thanks, I will do. Although a potential problem here is that I still use the accountant I used when self-employed who is some 200 miles away. Perhaps now would be a good time to change to a more local (and Chartered)! one.

as it stands it will be difficult to place .... but I would love to be proven wrong and hope you find someone !!

Thanks again. Me too!!

TheChillPill

TheWheelMan wrote: »

Well we do kind of have that, its just that in 09/10 we paid most of it to ourselves as salary! Do you think that that won't count for anything?

Anything taken as a salary wouldn't be technically classed as profit - i.e you wouldn't have paid corporation tax on that money, but would have paid income tax.

When it comes to a mortgage application, that's a fairly important thing to distinguish. If your profit (in your eyes) was £13,000, but paid to yourselves as salary - then the company still hasn't made a profit. However, if paid as dividends, then you have made a profit (but have a lower salary).

Your accountant should be able to advise on the best route forward - but make it clear to him/her that you need a balance between tax efficiency and figures that will be favourable for a mortgage application.

holly_hobby

Although I use a chartered accountant - you do not need to for a Ltd Co ( I have had this confirmed, and contradicts previous info (from official source) given when I started my own ltd co up). However, I would prefer a chartered anyway due to the proven training & professional qualifications. (as anyone can set themselves up and call themselves an accountant - whether they have had professional training or not)

If you already have an accountant who has been sumbitting books, and your are happy with him, his advice, practice of your accounts and his fees, then stick with him.

You have mentioned you use the same accountant you used when you were self employed - although a Ltd Co is an entity on its own if you will, as you are major & sole shareholdes you are classed for mortgage purposes as being Self Employed as you are controlling directors. (anything over 20% shareholding is generally seen this way for mge placement).

Yep .. as stated when you're talking mortgages - its taxable income thats generally considered. (although trust income can be considered in certain circs)

An underwriter (uw) will look at the fact that your business has grown from scratch to a profitable situation - and that is a positive for your case not a negative.

IMHO a low LTV is critical with this case - you need a good whole of mortgage experienced mortgage broker - who knows which lenders have a hands on and balanced underwriting approach, and may be able to call onthe assistance of their lender rep.

Unfortunately after the fall out we had, underwriters/lenders are understandibly now a bit jittery in signing off a case, so to get a case like this through the presentation needs to convince the UW that on balance, there is little risk for the lender in accepting your business.

So if for example you have attained new contract(s) this year, the benefit of which won't show until next year, include such info in your presentation i.e value of the contracts, period of agreement to supply, etc etc ... you are a business person - think if someone presented a business proposal to you such as this, what info would help convince you it was a viable and secure proposition ... you get the idea !!

Hope this helps

Holly

Thrugelmir

TheWheelMan wrote: »

The business has done very well, starting from scratch, acquiring premises, lots of capex on equipment & setup. Marketing and acquiring customers from a standing start, turnover has doubled every year, it just took 3 years (pretty much as expected) to reach critical mass. But in the current mortgage climate I don't know whether anyone will take any notice of the growth story.

A growth story reads well to the public at large. All that counts financially however is delivering proven results on a consistant basis, i.e. in your annual accounts. As that's the only true measurement of performance.

waveneygnome

Similar position to OP.

I was a 33% shareholder/director of Ltd co. First Direct looked at 3 yrs PROFIT of the business, and allocated a third of it to me.

They defined profit before actual directors wages or dividends were taken out (i.e. not just my wages + dividends). In my case this was significant as the Directors were leaving sizable amounts of profits/cash in the business for a contingency funds/future aquisitions.

I know that some brokers won't cover First Direct, but if your LTV is low, they may be worth a try.