Obtaining a mortgage as company Director - Argh!

Simon_gloster

No worries (might be me!!!!) I think your last statement is correct but it depends if they have paid the right amount of tax on any form of taxable income.

If your divs didnt go to hmrc and went straight into you wallet as an eg, then when you prove your income via SA302's, the figures wont match to the application and the lender will use the figure declared.



1) £12000 paye plus £20000 divs. £32k declared so 20% tax to pay and the sa302 will show £32000.

2) £12000 paye £20000 divs paid but only £2000 declared for whatever reason the sa302 will show income taxable of £14000 which will be used.

These are corse examples and it can be more complated than this, but how and why and whats etc of what is earned boils down to these forms.

As I mentioned it can be done via little lenders but all are looking this more closely.

Conrad

To be frank this is all way too complex with a million possible permutations to ever come to terms with on a forum.

As others have said, in these situations they only way is to sit down with an experienced broker (not a call centre type organisation). A good broker will work with your accountant to find a solution.

redrum1982

Conrad, you're probably right in that there are too many permutations to cover here.

I just find it surprising that two people who effectively earn the same amount of money can be offered such varying levels of borrowing.

harvey115

The reality of the truth is that standard employment income is easy to work out and the numbers usually match all the way. However self employment is very different in a sense that your financial plans can change your annual accounts at the last minute of filling as well.

Due to this flexibility available to self employed, higher level of scrutiny and criticism is followed by the lender to avoid financial problems that are hiding behind nicely presented numbers.

Although the above explaination does not help in your case, at least we know why lenders do this.

grey_gym_sock

dividends are more lightly taxed than salary (no employee NI, and mostly lower income tax rates). so generally you can get the same net income from a lower gross income when your income is paid partly as dividends.

however, in some ways it makes sense for lenders to go by gross income. tax rates and rules may change, so it means they're not relying on the tax system remaining as it is. it may also be a case of lenders being suspicious of anything other than standard employment.

Conrad

redrum1982 wrote: »

Conrad, you're probably right in that there are too many permutations to cover here.

I just find it surprising that two people who effectively earn the same amount of money can be offered such varying levels of borrowing.

redrum, your'e forgetting the British 'mis-selling' claims culture.

Imagine going to a repossesion hearing. In that hearing the applicant will turn tail and argue the lender should have only taken into account Taxable profits / divis / SA302 Taxable earnings.

If a lender was found to use other numbers, thats when the applicant will scream mis - selling and hold out thier grubby mit for compensation.

Sorry folks, untill you stop with this mis - selling mentaility, mortgages are going to remain a strict arena.

redrum1982

Conrad wrote: »

redrum, your'e forgetting the British 'mis-selling' claims culture.

I don't think the "mis-selling culture" to which you're referring really plays any part in the point I'm trying to make.

I'm simply saying that, in terms of affordability, someone who earns £45k through DIV+PAYE can afford the same as someone who earns £56k through just PAYE.

And therefore it seems odd that someone who gets paid via the DIV+PAYE route should be penalised accordingly via the "multiples of income" equation.

Thrugelmir

redrum1982 wrote: »

So basically people who get paid via DIV+PAYE will always be offered less by a lender than people who take home the same amount but get paid solely via PAYE.

Even though the amount of money which is actually paid into their accounts is the same?

Company Directors \ Self Employed can only draw remuneration from their business on the basis of profits made. Whereas a PAYE employee is contractually guaranteed his wage. So has vastly greatly security as to monthly income.

Lenders have to factor this risk into their lending policy. There's no penalisation.

redrum1982

Thrugelmir wrote: »

Whereas a PAYE employee is contractually guaranteed his wage. So has vastly greatly security as to monthly income.

Not sure this is completely accurate. A company director could just as easily be paid via PAYE (albeit with an increased tax liability for both the company and the individual). The fact that someone is being paid via PAYE doesn't automatically make them less of a risk.

Thrugelmir

redrum1982 wrote: »

Not sure this is completely accurate. A company director could just as easily be paid via PAYE (albeit with an increased tax liability for both the company and the individual). The fact that someone is being paid via PAYE doesn't automatically make them less of a risk.

Your comment is validity but only in given circumstances. What size of Company are referring to?

A well established privately owned Company employing 30 people is totally different to a One person Company. Where the Director is the only "employee".