Company Director and Mortgages

marginex

Hi Everyone,

Cracking forum!

I’m hoping someone can help, I’ve started looking into the idea of trying for a mortgage but the way I pay myself (very common scheme) is via both PAYE and Dividends, I don’t pay out any tax on my earnings so what I take out I take home all of it which currently is 21K

My wife receives £5k a year so im using a joint income of £26K

Now when it comes to multiples I seem to hit a brick wall, basically for employed people for them to take home net 21K a year as I do, they would be paid £27k a year which means even though we take home the same they can get their hands on bigger mortgages if that makes sense as based on the above they can say they earn £32K which as you know is a big difference. I’ve heard of the term “grossing up” does that apply?

I guess what I’m asking is this where the use of “brokers” maybe best as they can see what im trying to explain and get the lenders to see my point, I’ve not gone further then using online calculators currently, I know we have very high affordability, no debts, one credit card that is pretty much fully paid, both got good credit.

Hope that all makes sense, would love your thoughts.

Brett

HAMISH_MCTAVISH

Lenders will usually consider gross, pre tax, income for the overall multiple of income.

Affordability calculations will then also look at other outgoings and be based on net, take home, pay.

Online calculators are a rough guide, they're not definitive, and not built to take account of individual circumstances.

Go to a whole of market broker and explain the situation to them, they should be able to help.

If the argument you're making is that your net income is equivalent to the net income of someone earning 32K on PAYE, but your gross is lower due to tax efficient arrangements, then they may be able to find a lender who will consider it accordingly.

ACG

Its your gross income they go off. Even though you come out with more money than people on the same wage - you can not borrow more than them.

General rule of thumb is 4x income (paye & dividends) - so £21k x 4 = £84k plus £5k x 5 = £104k.

It may be possible to get 4.5x but i think 5x income might be stretching it just a little bit.

Also, as you are self employed you will most likely need to provide 2-3 years SA302 (Which can be obtained from your accountant or hmrc directly) and/or company accounts. Lenders will either average out the last 2-3 years or go with the lowest.

If your looking to stretch your income as far as possible then it probably is best you speak with a broker.

GMS

Are you the sole director of the company? If so there are lenders who will use the net profit (if higher) rather than salary and dividends.

You would need 2-3 years accounts with profits increasing.

Broker useful for you here.

marginex

Thanks everyone!

Got to say if thats the case ACG really disappointing :-(

Seems odd there isnt a way round that, not sure by paying tax etc means your entitled to borrow more as you dont ever see the money doesn't add any extra security to the lender.

Feeling rather deflated now...

Brett

marginex

I am 100% sole director, have 8 years of trading...

notanewuser

You can't have it both ways!! Declare low for tax purposes but high for mortgage!!

marginex

Have it both ways??

Ultimately I was asking as im taking home the same as someone who is on 27k employed you would think my wife and I would be allowed the same, after hearing I cant would you be disappointed??

Not sure that comment was necessary

Brett

ACG

you can borrow the same as someone who is on £26k - assuming you can evidence it for a couple of years.

If your income has been £7k for 5 years and then jumped to £26k then you might struggle. But if you have had circa £26k for 2-3 years then you can borrow the same as a couple whos employed income is £26k.

I was saying you cant borrow more than them just because your paying less tax.

nonnatus

I think the "have it both ways" comment was quite insightful actually, and not intended to be mean.

As a Self Employed person, my Accountant works very hard to keep all declared figures at a "manageable" level to ensure that I pay minimum tax.
Unfortunately, that then becomes a problem when you want to impress somebody with sales figures - be they potential buyers or a bank for mortgage purposes.

Much of the time we want to be seen to be earning very little. Occasionally we need to be able to see past that to the real numbers!

Catch 22.

ohit

Go see a specialist or mortgage broker with experience of these kinds of clients.

Hundreds of people like you that the market does service for their borrowing needs.