Mortgage for a director using company profit as income

kazbaz1

Hi does any one know if any “Story Book” lenders who will take the time to understand your personal circumstances and have an actual human being looking at mortgage applications (rather than “computer says no!”) I’m desperately looking for a lender who will take my measly Director salary plus retained company profits as my income? Anyone had a positive experience with this? I’ve spoken to a broker but the rates are high and he keeps suggesting sub prime lenders, making me think he is all about the proc fee?!
Thanks a lot for your help!

amnblog

If by 'story book lender' you mean one that is interested in reasons behind the income not being enough, you will have a long search. The regulator is not a fan of 'story books'.

If you have clean credit you do not need a 'sub prime lender' for this - you may need a specialist lender.

Working on PAYE and business profit is not an issue and there are a few avenues depending on share holding.

The phrase 'retained profit' however, can be mis-understood in our market. If you mean profit earned in the most recent trading years, but not taken as dividend, fine. If you mean a cumulative figure on the balance sheet based on profit earned two, three or more years ago, you are wasting your time. Lenders are interested in recent profit.

You may benefit from a second opinion which will, at the worst, cut out a lot of wasted time and frustration.

kazbaz1

Thanks very much for your reply. I own 2 companies both of which show a decent profit for last 2 yrs. I didn’t draw the profit as dividends for tax reasons but need to use it to bolster my income now for affordability. I only need the profit from one of the companies as my 50% share of that is more than enough but have the profit from the other company if needed too. Which are the best lenders to approach for this please? I have had my offer accepted on a house so time is of the essence 😬
Thanks for your help

marliepanda

kazbaz1 wrote: »

Thanks very much for your reply. I own 2 companies both of which show a decent profit for last 2 yrs. I didn’t draw the profit as dividends for tax reasons but need to use it to bolster my income now for affordability. I only need the profit from one of the companies as my 50% share of that is more than enough but have the profit from the other company if needed too. Which are the best lenders to approach for this please? I have had my offer accepted on a house so time is of the essence 😬
Thanks for your help

And that's your problem. You cannot say 'oh I have no profit, sorry tax man' and also 'Oh hello Mortgage provider, I made loads of money but didn't want to pay tax on it.'

You've jumped the gun by offering on a house. Luckily for you an offer isn't legally binding.

I have just bought a house recently in similar circumstances (one of us is a company director) only with us, we did actually declare our profit to HMRCc and therefore had plenty of years of profitable books to show the mortgage advisor, not cooked books.

dunstonh

I didn’t draw the profit as dividends for tax reasons but need to use it to bolster my income now for affordability.

You personally and the company are two different legal entities. What the company earns is not what you earn.

Yes, you can use the company to improve your tax situation. However, when you do that you are reducing your income. It is the age old issue which only went away for a few years in the credit boom but has correctly returned. Personally, I am taking a bit more in dividends that I need as I am looking to buy a new place in a couple of years to avoid this issue. However, if the scenario can be explained, there are lenders that will listen as long as everything stacks up.

It is also very unusual to have someone receiving no dividends. Directors of normally take a salary up to the level of the primary threshold. That is £680pm in this tax year (£8160). That qualifies as paying NI despite not actually paying a penny in NI. This leaves some personal allowance unused and you have the £5000 dividend allowance. So, taking dividends to that level is tax efficient. So, when you go to the lender and tell them you are not taking dividends because of tax efficiency, it doesn't quite stack up as you would still be taking some.

amnblog

I cannot suggest Lenders based on a sketchy knowledge of your situation. I need to be engaged to assist you and fully understand your situation to make a lender suggestion.

From what you have said, it seems likely there will be a suitable Lender.

DavidT67

Most mortgage lenders will be content with three years of SA302 Self Assessment statements and / or your company accounts and a reference from your accountant.

Have a chat with your accountant / tax adviser, get the necessary paperwork and establish what your average / sustainable income actually is and proceed from there.

HTH

kazbaz1

Thanks for all your replies.
Please don’t get me wrong, I am not committing any kind of tax evasion scheme!! I have declared my profits in full to HMRC And paid tax on that profit (corporation tax) but as I didn’t need the income for my personal expenditure I chose to leave the money in the business as it is more costly to pay income tax on money I didn’t need to draw.
I know lenders exist who consider company profit for the affordability ratio, I just don’t know which lenders to approach. Was hoping someone could point me in the right direction
Thanks