Anyone know a legal way round this?

samson1313

I’m intersted in buying a house using a residential mortgage thats up for sale at £150000 i think i would be able to get them down to £140000 i have £90000 deposit so you would think borrowing the £50000 would be easy!
No cause i'm self employed and over recent years have ploughed most my turnover back into new stock building my business up my net profit on my SA302 forms only shows at around £8000 per year net profit for the last 3 years, as i said before most my turnover has been put back into buying new stock for the business and my circumstances at the time (i'd moved back in with my family) allowed me to have basically no bills so this small amount was just like spending money for me allowing me an ok living! but cause of this £8000 a year all i can borrow is about 4 times it so aprox £32000 which is £18000 short.
I currently rent a storeroom above a factory for my business that costs me £200 a month, the house i want to buy has a double garage that would replace the storeroom saving me £200 a month plus travel costs etc I also had a business loan which was costing me £244 a month up till January last year which is now clear so again that ment my net profit was effected by about £3000 a year.
So with these 2 factors taken into account I could easily cover a £50000 mortgage where monthly payments would be about £300 a month max so all makes sense really except the mortgage adviser says that all the providers he's spoke to have said they will only go on what the SA302 forms say and thats it.
I thought about maybe a business mortgage but I’m not sure how these work and weather I would be a lot worse off or just wondered if anyone else had a solution to this?
I could buy a smaller house outright but then I would have to keep paying for my storage unit and as it’s costing me £2400 a year and I’ve already been there 6 years it seems stupid to be lining someone elses pockets instead of just paying off my own mortage.

Any help or advice is much appreciated

kingstreet

Unfortunately, one of the costs of reducing your net profit to practically nil is impaired ability to borrow. Lenders take the net profit from your SA302s and that's about it, these days.

getmore4less

Could you raise another business loan?

How big?

How much is the stock worth?

theartfullodger

Easy: Do your next tax return (ah, shame, some months away..) and leave off almost all expenses & do not invest in stock:

Hey presto, lotsa profit, now ask for mortgage.. You would of course have to pay rather more tax & be expected to carry on paying tax at that rate the following year.... !!

Similar thing happened to a close relo of mine...

Cake & eat it is hard to come by...

Cheers!

G_M

My only suggestions would be to see another adviser and hope he can find you a more personalised lender, or post on the mortgage forum.

But Kingstreet above has pretty good knowledge, so don't hold your breath!

jamesml

I'm sorry but I don't really understand your 'reinvesting' and 'buying more stock' piece.

Cash does not directly equal profit, and if you had put a lot of spare cash back into buying stock, then this would actually just generate more profit (eventually), rather than creating a loss. If you'd had excess cash at the end of the year, and bought a load of stock, this would only impact your profit if you'd also sold the stock by year end. Unsold stock at the end of the financial year should not have impacted your profitability to any extent.

How is your business set up? Ltd co or sole trader? If you are a ltd co and what you have said is true, you may well have some profit tied down that you could release through dividends, increasing your income on your SA302 (especially useful given we are not too far away from the tax year). Go and check your annual accounts. If you are a sole trader then you are taxed on all your profit already - so unless someone has not prepared your books correctly and has put all your stock purchases through the P&L as incurred, you unfortunately just run a relatively low profit business (I don't mean that to sound rude at all - just that you say you have made low profit because of your stock purchases, but unfortunately this doesn't really fly).

The business loan again will unfortunately not increase your profit, although it will free up some cash which could help you increase your income depending. The storage costs are a direct expense - could you perhaps beg the use of a friend/family members garage for a while to turn this into profit instead? Having said that, that will still only make up half your shortfall.

Could you save any more/for longer?

samson1313

jamesml wrote: »

I'm sorry but I don't really understand your 'reinvesting' and 'buying more stock' piece.

Cash does not directly equal profit, and if you had put a lot of spare cash back into buying stock, then this would actually just generate more profit (eventually), rather than creating a loss. If you'd had excess cash at the end of the year, and bought a load of stock, this would only impact your profit if you'd also sold the stock by year end. Unsold stock at the end of the financial year should not have impacted your profitability to any extent.

How is your business set up? Ltd co or sole trader? If you are a ltd co and what you have said is true, you may well have some profit tied down that you could release through dividends, increasing your income on your SA302 (especially useful given we are not too far away from the tax year). Go and check your annual accounts. If you are a sole trader then you are taxed on all your profit already - so unless someone has not prepared your books correctly and has put all your stock purchases through the P&L as incurred, you unfortunately just run a relatively low profit business (I don't mean that to sound rude at all - just that you say you have made low profit because of your stock purchases, but unfortunately this doesn't really fly).

The business loan again will unfortunately not increase your profit, although it will free up some cash which could help you increase your income depending. The storage costs are a direct expense - could you perhaps beg the use of a friend/family members garage for a while to turn this into profit instead? Having said that, that will still only make up half your shortfall.

Could you save any more/for longer?

I agree that investing in more stock increases the profit eventually and my turnover and stock levels are increasing every year, i started from scratch and i now have aprox £70000 worth of stock, i havnt made a loss i've just reinvested most of the money i've made to make the business grow and just left enough over (aprox £8000) each year to live on as i had very few expenses as i was living with relatives for the last 3 years

I run an online record shop so the more stock and variety i have the more orders i get so the more money i make, i could as suggested stop buying stock for a year but this would just slow down my sales and decrease my overall turnover

I trade as a sole trader, i've just inherited some money so i would like to buy the property i mentioned before but to do this i need to borrow more than the income showing on my SA302 will allow so i was just wondering if there was a way round it, its all very well saying try and save a bit more money and reapply in a years time but by then (if the media is correct) house prices will of risen by between 8%-15% depending on where you live in the uk so i'll probably end up in the same position!!

pleasedelete

Well you don't have a sound profitable business at the moment do you? you have a lot of 'stock'. is that a retail price or wholesale? If you have £70k of stock then sell £30k worth- after corporation that that would be more than enough to dividend the £18,000 shortfall. Could be done in weeks.

Mattygroves2

If you are calculating your profit properly then investing in stock which is then held at the end of the tax year should not impact. You should be valuing your stock at the end of the year and deducting that from your purchases for the year to come up with a reduced cost of sales to deduct from your turnover.

For example say you had £20,000 of stock at the beginning of the year, spent £70,000 on more stock in the year and then had £50,000 of stock at the end of the year your cost of sales would be £40,000 to be deducted from your turnover (20,000 + 70,000 - 50,000) despite the fact that you've actually spent £70,000.

You need to value your stock at the lower of cost or net realisable value (what you could get for it) so need to be realistic about what is never going to sell.

You nay also struggle to get your stock insured if you store it in your garage or even a spare room - insurers don't like mixed residential / business use.