Restructuring Business, 2 year fixed mortgage

looknohands

Hi I'm looking to change my business from sole trader to limited company this year becoming a director and paying myself a salary and hiring staff. My current mortgage is a two year fix with 18 months left to run.

I was told before I got my first mortgage not to change the business as it could effect elgiigiblty for mortgage. Now I have a mortgage I assume it would be safe to do so.

My main concern is locking myself out of getting a new mortgage product once the fix is finished as I'll only have 1 years full accounts for the limited company and one year as a director. Does the fact I have a mortgage already and pay it on time make a difference here, my current mortgage was as a FTB

dimbo61

You have another 18 months left on your current deal.
If you can overpay each month and build up the LTV.
You may have to take a new deal with your existing lender

looknohands

So would need a higher LTV to get a different deal with just 1 year as a director of a limited company?

My LTV is currently 90% what LTV is recommended for my situation?

Do I need to overpay or is it possible to add more deposit at time of remortgage from savings? and if I had the house valued might it not be worth more and increase LTV?

looknohands

Hi I'm still wondering if anyone had any input on this.

I have 18 months left to run on my current mortgage deal, 2 year fixed with Virgin.
We owe £150k, 90% LTV on a 30 year term, repayments currently £649 pm.

I know it's a while ahead but having just done my SA tax return I am looking to setup a limited company with myself as the sole director.

My self employed turnover last year was 60k, previous year 44k.
I don't need to be paid this much and my tax bill is ridiculous.. so am looking to keep the money in the company and grow the company away from my personal tax affairs.
I would set up a limited company this month and pay myself 35k per year salary, leaving profit within the company.

I'm thinking ahead about when it comes to remortgaging. Will my change of circumstance, becoming a salaried director, and dropping to 35k per year make it hard for me to get a new mortgage deal in 18 months time. I will have 1 years accounts for the business, personal would be 5 years SA302 and 1 year salaried (though as a director).

Any advice appreciated I'm worried of being left on SVR or not being able to buy a new property (as this is also a possibility)

Verix

I wouldn't worry about it too much. There are lenders out there who are ok with sole trader to ltd company as long as there has been no material change in the structure of the company.

If you change over now I assume you will have at least one years accounts to go off and I think you will be able to find lenders who will accept that (going off lender criteria as of today). Of course it might be easier to just do a product transfer with Virgin when it comes to get a new deal, assuming that they are offering them at that time.

Unfortunately no one can predict the future to give you 100% confidence in whatever choice you make.

looknohands

Thanks Verix, when I applied for my FTB mortgage with Virgin it was min 2 years SA302s with my product, hence the concern that 1 year Ltd might not be enough. I might just ring Virgin, obviously would prefer to have more options open than being stuck with Virgin forever, so thanks for the input on other lenders.

Glover1862

If you do a product switch "Execution Only" ie you take no advice and understand you are not covered by FCA rules you can just move to a new deal with Virgin (keeping the same term and mortgage amount you have ), not all lenders offer this but Virgin Do. It's a simple process and no further credit or affordability checks are done. Virgin are quite competitive and even if slightly more expensive you have no legal or application fees to worry about.

looknohands

Ok I spoke to Virgin, and I'm a bit confused.

The advisor tells me that if I setup a limited company and I am 100% shareholder my assessment for my next mortgage product is based on my personal income + the companies net income, so if the company revenue was £60k and I pay myself a salary of £35k, leaving a £25k net profit in the company then my income assessment for borrowing would still be £60k.

This seems strange, I thought a limited company was an entirely separate legal entity and it wouldn't be possible to use it to assess my income. Anyone shed any light on this? Just want to check this is correct, and if anyone has any knowledge of other lenders working the same way?

Verix

I can't say I'm actually that up on Virgin's criteria but I understand they are a bit different when it comes to assessing income for Ltd companies and can take retained profit (if memory serves). As you say most lenders will go off salary and dividends and nothing else. I'm assuming the adviser from Virgin has informed you correctly but don't take it as standard for all lenders.

amnblog

The contact at Virgin meant they would work on the profit from the business (assuming you own it all) plus the paye salary you receive (which will of course will be paid before the profit figure is calculated).


You will find problems if you look for an alternate lender in 18 months time (although) some will consider you. You cannot however make business decisions based on whether you can obtain a new mortgage rate.

looknohands

thanks well I guess I'm with the best lender for setting up the company actually, which wasn't intended, so lucky there!

Virgin don't take dividends as income was the only point she made, which doesn't matter as they allow for the net profit on the 100% ownership + salary.

If anyone else has any further knowledge of products that do similar let me know.

im more worried about the business decision effecting buying a bigger house as it seems a remortgage is fairly easy, but it may hinder borrowing more money in two years time for a bigger house.