Contractor Mortgage

kobie

hi
I approached a main street lender looking for a Mortgage for about 175K on a 400K property. I explained how I am co-owner(50% shareholding) in a company with Gross profit of circa 190K. significant retained profit and two years accountant generated accounts. Additionally I have existing contract's for at least the next 9 months and have worked for these clients for the last 2 years.

So I was expecting this to be plain sailing:j but they said that they would offer me 150k, which is 4x my salary and dividends. Plus this could also decrease as I have dependants.

So are there any lenders that would look at the whole picture rather than just a multiplier of a income.

Thanks
Kob

Calfuray

You would be best going to a mortgage broker.

Let_Us_See

Unfortunately, it appears you selected the wrong lender. As long as there are no other issues I cannot see any reason why you should not obtain you mortgage requirements with two years accounts - unless you first year was significantly lower?

Find a broker.

Thrugelmir

kobie wrote: »

hi
I explained how I am co-owner(50% shareholding) in a company with Gross profit of circa 190K.

Gross profit has no meaning.

What matters is net profit and/or your remuneration in whatever form it is drawn as a director/shareholder.

kobie

hi
Gross profit = t/0 less cost of sales, expenses in my case.

If I quote Nett Profit then it would have been gross profit less salaries. dividends and anything else ... my drawing are based on what I need, plus this figure could look low depending on if I made any pension contributions.

ok - I'll dig around and track down a broker...

Thanks

egoode

You definitely need a broker and ask specifically if they have experience with contractors. There a lot of lenders that won't deal with contractors at all and some will look at your earnings in different ways. I know for me if they just look at my accounts they tend to offer me less but others use my day rate and will offer more.

Wh05apk

This is nothing to do with contractors, if you have 2 years accounts, then effectively you are just self employed, most lenders are lazy now, and will only use salary and dividends, or SA302 figures, there are some who will still add back in retained profits, find a good broker.

holly_hobby

Well firstly, find a higher income mulitplier ... which should be relatively easy on the published LTV.

Other than that, no lender will base affordability on gross profit ie the company turnover before the application of operating costs (as you can't have one without the other and also aren't assessed for corp tax on gross profit/turnover).

I am assuming this is a Ltd Co (due to you being a Contractor and your clients indemnity requirements), of which (with a 50% shareholding) you are a controlling director. Which in turn means you're classed for financial application purposes, as being self employed, with your salary essentially equivilient to drawings plus dividends.

If you are an IT/FS contractor assessment may be slightly different with select lenders, whom will consider the value of the contract.

But I am currently assuming that you're not.

The complication is that it appears you want your share of company (gross) profits to be assessed, now whilst that isn't going to happen, the only lender I am currently aware of, whom as part of the affordability process will assess the individuals share of ltd co profits as part of the affordability process, is Clyesdale Bank (FYI - whom accept both direct and intermediary applications).

Their SE assessment is generally 3 yrs books, unless there is a clear upward trend (when the last 12 mths will be solely assessed, but does not mean you only need 12 mths trading as per a previous discussion), with (in respect of Ltd Co's), affordability then based on the applicants share of profit (net of course), in addition to the applicants remuneration plus any interest on capital or fixed profit share.

Is this any help ?

Other than that ... as I say, no lender will assess lending on your 50% share of gross profit, as its clearly not representative of the indviduals renumeration, which can be, and are, 2 different things.

Let us know how you get on.

Hope this helps.

Holly

kingstreet

kobie wrote: »

they said that they would offer me 150k, which is 4x my salary and dividends

Use a lender with a higher income multiple.

There are at least four. I guess you've approached HSBC or Yorkshire Bank if you've been told 4x?

olly300

Virgin Money, Barclay's and Clyesdale Bank at the moment will look at 2 years accounts and retained profit. The rest want 3 years accounts including HSBC and Yorkshire Bank.

While Clyesdale Bank have been mentioned I know VM will look at your share of retained profits if you own more than 25% of the company.

I would try a contractor mortgage broker first - google for a UK contractor site as they will have links. Before going to VM or Cylesdale if the broker can't help you.

Once you get the mortgage I would also see if you could rearrange your tax affairs i.e. company structure particularly if the other director doesn't have a mortgage and will want one in a couple of years to make it easier for them to get one, and for you to remortgage. The UK based contractor site will have information and links for you to do this.