Bank banks changing self employed Ltd mortgage critera... SA302 notes

apositivethinkingcat

In the last few months the mortgage companies who had previously used salary & dividends and included retained profit in company (as sole shared holder) will now only take SA302s as my income. You have to phone HMRC and request SA302 statements to get them & I had to explain why as it is not one of the documents they normally supply.

So, that means if you run as a ltd and work for yourself and have been leaving money in the company (seems sensible so you can pay yourself when ill or if work slows to guarantee regular income etc) only the money you have taken out now counts.

Below I explain how this maths will change what ltd self employed can borrow:

Before anyone says 'this is like a regular job' - for a regular non self employed person it is still just 3 or 4 months of payslips. Self employed ltds are now an average of 3 years of removed profits only - it's as if all a regualr employees' pay rises or promotions don't count & they are lent money based mostly on what they earned 3 years ago - I get why things are harder for self employed - but now they say I cannot afford the mortgage I have and overpay by £200 every month so I know it has gone into maddness!

In fact - this move may force many self employed people to take a job for 6 months earning a lot less, because the mortgage companies will let them borrow more if they do.

So, say I have a £150K mortgage and my payments are £800 a month, so I just take out £1.5k a month as easily covers my needs. Then I apply for a remortgage to get a better rate >>> They will now refuse as you can only afford £72k max as that is 4 times your yearly income based on what you take out the company. This also means no buying a bigger place as the fact you have thousands in the company account to cover increased payments won't count, no porting the mortgage, no anything for years or unless you can afford the risk of paying it all cash up front and not having savings for when work is slow / illness / holiday needs.

This affects HSBC, Lloyds, C&G and one other I asked.

Based on this the company has revised my available mortgage down by over £100k from the agreement in principle last month, even though I have a current mortgage with them at the higher amount which I regularly overpay. In fact my earnings are still increasing ironically.

So, if you are looking to get a mortgage and are self employed ltd you need to take as much money out the company as possible as salary and dividends.

Also, as they are taking an average of the last 3 years, so even if you take say £60k out this year but have been just taking out what you need for the last 2 years, the average will be used. So you need to work out what average you need to get the borrowing you want, then take out enough to force your 3 year average up to that amount... for many people this will be almost impossible.

I have found paying off all other debt so your monthly commitments are zero makes a fairly large difference as always, what LTV you need doesn't seem to make a difference any more, the bank was also very apologetic!

It is unfortunate. But it seems it is the way all banks are going. They have been asked to increase their emergency reverses by millions and by tightening the reins on lending is the chosen route.

If anyone knows of a lender which is not now using this new method please let me know! ^_^

GMS

There are lenders who will consider. Have a chat with a broker.

apositivethinkingcat

I have an appointment with a broker next week. I just find it very strange my bank say I cannot afford my mortgage, which I am overpaying so clearly can afford, it seems counter-intuitive that a company that doesn't know me from Adam would give me a better deal than the one I have been with for many years.

Will report back if I find any good offers. Just mainly wanted to give others a heads up in case any other self employed peeps plan to remortgage or move!

Thrugelmir

apositivethinkingcat wrote: »

Also, as they are taking an average of the last 3 years, so even if you take say £60k out this year but have been just taking out what you need for the last 2 years, the average will be used.

So the £60k doesn't reflect the profit made in the period. As includes a withdrawl of retained earnings from prior years. So wouldn't reflect an accurate picture.

leveller2911

apositivethinkingcat wrote: »

So, that means if you run as a ltd and work for yourself and have been leaving money in the company (seems sensible so you can pay yourself when ill or if work slows to guarantee regular income etc) only the money you have taken out now counts.




Thats been the rule for years when claiming tax credits.

Sole trader Ltd companies can pay themselves minimum wage, leave the rest in the company and claim maximum tax credits.

Personally having been self employed for 25yrs and know many sole trader Ltd companies its about time they were looked into whether its Tax ,benefits or mortgages.

Thrugelmir

leveller2911 wrote: »

Sole trader Ltd companies can pay themselves minimum wage, leave the rest in the company and claim maximum tax credits.

However retaining the profit means Corporation Tax is still payable. To withdraw the "profit" from the Company a later date will still incur a taxation charge.

leveller2911

Thrugelmir wrote: »

However retaining the profit means Corporation Tax is still payable. To withdraw the "profit" from the Company a later date will still incur a taxation charge.

Agreed but they can still qualify for benefits now if they draw minimum wage and this would not be paid back when/if in the future they withdraw "profits".

Its a side issue I know...:D

LawrenceAMN

If you have retained profit in the business you may have a solution here.

It is not just about the money you take out of the limited company.

Depending on your % of the business and the lender you approach you can get this mortgage.

Use a broker.

Simon_gloster

Based on this the company has revised my available mortgage down by over £100k from the agreement in principle last month, even though I have a current mortgage with them at the higher amount which I regularly overpay. In fact my earnings are still increasing ironically.

The paragraph above reads to me that you declared a genuine income, possibily your net profits, then upon request your form from HMRC on what you and had declared tax on came in lower than what you told the lender. This is the reason why this is happening across the UK.

Whether its right or wrong is irrelevant unfortnately as its the simplest way to read income and verify with other parties should it come to it.

Thrugelmir

Simon_gloster wrote: »

The paragraph above reads to me that you declared a genuine income, possibily your net profits, then upon request your form from HMRC on what you and had declared tax on came in lower than what you told the lender. This is the reason why this is happening across the UK.

More likely that current drawn annual salary is higher than average of past 3 years. As previous unwithdrawn profit is being paid either in salary or dividends. Unless the underlying profit of the Company increases then this is obviously unsustainable.

Simon_gloster

A few lenders will entertain the income most recent if its an increase on the previos year. Most, agreed, will average them out.