Mortgage advice please

crystal1330

Hi All,

Me and my partner want to buy his parents house.

House is valued at £410,000. They have agreed to sell it to us for £300,000, with personal arrangements to re-pay the rest (through re-sell, development etc)

We will have a £100,000 deposit in 6 months or before but we want to buy in 6 months.

We are both currently Directors and this is where it gets tricky. Believing we was not going to buy for a long time, my partner has been on a very low wage and the rest of the money goes back in to the business, instead using the extra money to employ more staff. We live rent and mortgage free, so it was the only way we could save for a while.

My business is new and wont have its first year accounts submitted until Jan 2015.

However from last month we both changed the directors of the companies and increased our salaries. We are on the PAYE. He earns £4,000, so pays substantial tax and I earn £2,000 through PAYE but I am also a student and receive £9000 per year, £3000 in non-repayable grant and £6000 in loans.

We want to apply in about 6 months, so we would have been employed with a decent salary for a £200,000 mortgage for 7 months.

Our loan to value will be a 50%.

I am wondering if the fact directors were only changed recently, if that will follow us and we will still be in the "self-employed" bracket. How exactly does it work when you are working for new company but your nothing to do with it and are employed, with wage slips and tax payments to prove it?

Thanks!

Reue

crystal1330 wrote: »

House is valued at £410,000. They have agreed to sell it to us for £300,000, with personal arrangements to re-pay the rest (through re-sell, development etc)

Would this not run into stamp duty issues?

kingstreet

When the application form asks;-

"Do you own more than 20% of the shares in your employer?"

how will you answer that?

It is not necessarily being a director which is the issue, it's your shareholding and ability to manipulate the PAYE system by altering your salary and status in an attempt to circumvent the affordability/proof of income requirements, of which lenders are wary.

You will normally be required to provide at least two years SA302s from HMRC to evidence your income when you work for a company you directly or indirectly control.

Gwhiz

Reue wrote: »

Would this not run into stamp duty issues?

Yes it would. Potentially HMRC will come after the full SD that would be payable if the house had been sold at the true value.

kingstreet

As it happens, stamp duty is due only on the actual consideration paid, not the true value, so this is a red herring.

The issue is the manipulation of status to try to gain a mortgage, IMHO.

crystal1330

Thanks for your replies!

No, no stamp duty issues here. They could "gift" it to us if they wanted, we are simply buying blow value under family arrangements because that is what they are happy to do..

We would have no shares in the companies, well we don't as we removed ourselfs as Directors last month and are now just on PAYE as employed by companies we are no longer involved in.

Can we apply just like anyone else thats employed? Or will they ask us if we have been a director in the last 5 years for example..

Thanks!

kingstreet

Yes, you are no longer a director, but who owns the business(es)?

By resigning as a director does not mean you give up, or automatically transfer shares, to someone else.

crystal1330

The new business Directors have all the shares in each business, we have no legal control over the business but the people are well trusted family members and all profit goes in to our and other employees salaries.

kingstreet

It's unlikely you'll be asked if you've been a director if you aren't now, but many lenders ask questions about firms owned by family members and this will see them requesting the company's earnings data as well as the borrowers'.

In addition, lenders now have access to individuals' HMRC income/tax records so they can see their income history.

crystal1330

kingstreet wrote: »

It's unlikely you'll be asked if you've been a director if you aren't now, but many lenders ask questions about firms owned by family members and this will see them requesting the company's earnings data as well as the borrowers'.

In addition, lenders now have access to individuals' HMRC income/tax records so they can see their income history.

Hmm, I see.

How would they know the person was a member of your family as such?

The other option would be to re-open the businesses in a new name, this would of course mean that we are employed by new businesses, new businesses that wouldn't even have one years of accounts by the time we employed and I fear that would affect their willingness to lend based on the unreliability of someone being employed by such a new business. But then surely many people who start work for new firms and are on a relatively decent salary, with a good loan to value and decent deposit, must get mortgages? Were looking a re-payment value of £1,000 per month or under, which is hardly unaffordable by any stretch for us.

Last resort would be becoming employed by someone else's company, who we know, that has been running for many years but both starting to work for the same company, at the same time would be a little bit strange!

kingstreet

If you run your own business, you adhere to the lender requirement for a year, or two, trading record to evidence your income.

If you start trying to manipulate your employment to obtain a mortgage by deception, that's between you and your conscience, however, I'm not going to supply any more information which may be helpful in deception, or fraud.

No accusation intended, but just in case, I'm out.