Aldermore remortgage declined - incorrect information

BoGoF

Aldermore clearly don't like the fact that the company has £60k in the bank but have liabilities of £65k albeit your husband is the main creditor.

The fixed assets are only wortb £15k, not liquid and company needs these to trade?

If the intention was to apply for a mortgage after 2 years then the planning wasn't great.

Thrugelmir

lulabelle81 wrote: »

Really? We've had 2 separate accountants look over it (I got a second opinion to be sure) and neither suggested any cause for concern.

They'll have a different perspective to a mortgage lender. The mortgage lender has to consider the servicing of a £250k debt for the next 25 years. A company with volatile earnings doesn't provide much confidence. If the turnover isn't contractual, then there's no certainty as to what the future will hold. Being contractual provides at least a forecastable level of profit. Your accountant was trying to be helpfull.

lulabelle81

BoGoF wrote: »

Aldermore clearly don't like the fact that the company has £60k in the bank but have liabilities of £65k albeit your husband is the main creditor.

The fixed assets are only wortb £15k, not liquid and company needs these to trade?

If the intention was to apply for a mortgage after 2 years then the planning wasn't great.

But that doesn't make them insolvent does it? Common practice for Directors to keep money in the business and be paid back over a period of time.

and yes assets are needed to trade.

Planning on whose part? Timing not great, no, but we couldn't mortgage the property immediately on account of purchasing with cash, and then being in the middle of renovation, and I was a SAHM so our income wasn't enough. I went back to work, and husband had the opportunity to work with a new business partner, and we didn't realise the implications of being LTD. ie. starting back at square one financially in the eyes of a lender despite 10 years of previous self employment in the same trade. However, we did make it clear from the outset to the accountant that we needed to mortgage asap.

lulabelle81

Thrugelmir wrote: »

They'll have a different perspective to a mortgage lender. The mortgage lender has to consider the servicing of a £250k debt for the next 25 years. A company with volatile earnings doesn't provide much confidence. If the turnover isn't contractual, then there's no certainty as to what the future will hold. Being contractual provides at least a forecastable level of profit. Your accountant was trying to be helpfull.

But none of his work is contractual. He is an upholsterer so it is difficult to forecast more than 30 days in advance.

As I said before he has been in the trade for over 25 years and always had a consistent income. Their year one earnings were huge as the restaurant trade went crazy, he and his business partner were working 18 hour days 7 days a week to accommodate the workload. Last year, hundreds of restaurants closed down, thus their income returned back to normal levels.

runninglea

The bank will be concerned as the retained profit was negative by 9k, the company has only 2 full years trading with sales dropping in 2nd year by a third.

60K to hold in a bank account when the turnover is 135K is very high, could utilise some of that to pay back the directors.

Gross profit is good but you haven't stated the net profit before tax - what are all the admin, other costs, after taking quite a high level of dividends this has led to the negative retained profit, instead of taking the dividends they could have repaid some of the monies owed to them.

What was the net profit before tax in each year?

BoGoF

lulabelle81 wrote: »

But that doesn't make them insolvent does it? Common practice for Directors to keep money in the business and be paid back over a period of time.

and yes assets are needed to trade.

Planning on whose part? Timing not great, no, but we couldn't mortgage the property immediately on account of purchasing with cash, and then being in the middle of renovation, and I was a SAHM so our income wasn't enough. I went back to work, and husband had the opportunity to work with a new business partner, and we didn't realise the implications of being LTD. ie. starting back at square one financially in the eyes of a lender despite 10 years of previous self employment in the same trade. However, we did make it clear from the outset to the accountant that we needed to mortgage asap.

One of the definitions of insolvency is the balance sheet test where if the value of the companys assets are less than it's liabilities it is considered insolvent.

So with £60k of liquid assets and £65k of debts then you can see why Aldermore are taking the stance they are.

Planning wise - did your husband really need to vote himself the dividends? Was it an attempt to make his personal tax position look better for a mortgage?

amnblog

If cash at Bank is £60,000 and current liabilities are listed at £65,000 the figures show the business to be insolvent (more liabilities that assets on the balance sheet).

The Lender is not interested in background detail. When the Regulator asks Aldermore why they lent you £xxxx off the back of income from an 'insolvent business' they will be a hairs breadth away from a hefty fine.

The big question is, what is your Broker doing about this?

lulabelle81

BoGoF wrote: »

One of the definitions of insolvency is the balance sheet test where if the value of the companys assets are less than it's liabilities it is considered insolvent.

So with £60k of liquid assets and £65k of debts then you can see why Aldermore are taking the stance they are.

Planning wise - did your husband really need to vote himself the dividends? Was it an attempt to make his personal tax position look better for a mortgage?

Husband not business minded at all, and allowed Accountant to make decisions!! This is the first time he has actually looked at the numbers in detail. As far as he was aware, he thought he was fine as had a regular monthly wage. Needless to say, he has enrolled on a basic business management / accounting course.

lulabelle81

amnblog wrote: »

If cash at Bank is £60,000 and current liabilities are listed at £65,000 the figures show the business to be insolvent (more liabilities that assets on the balance sheet).

The Lender is not interested in background detail. When the Regulator asks Aldermore why they lent you £xxxx off the back of income from an 'insolvent business' they will be a hairs breadth away from a hefty fine.

The big question is, what is your Broker doing about this?

We have checked with 2 accountants and they are both in agreement that the Directors Loan liability does not make the company insolvent.

We took off record advice from our friend who was broker and approached Aldermore directly. I have spent the last couple of weeks sorting it out.

lulabelle81

After about 50 phone calls and emails, the underwriter at Aldermore is now in agreement that the business is not insolvent.

The Accountant had to verify the figures with regard to retained profits and the Directors Loan Account / Liabilities, and they were happy that the information supplied had satisfied their concerns.

They confirmed our offer yesterday.

Our Account Manager at Aldermore has handled the whole application brilliantly, maintaining communication, and giving clear advice and information. Just the conveyancing to go now, and then we will finally own our house.