Mortgage as a Director

lauralizzy1

Hello

I was hoping for some advice. I am self-employed and have just managed to get a mortgage on a house with my partner. However, it was very difficult as my income was a mix of zero hour contracts and earnings from being a sole trader. The banks would only accept my sole trader earnings (the zero hour earnings were not consistent enough) and this meant we had to wait a year to buy a house and it also had quite an impact on what we could borrow - we were mostly reliant on my partner's income (he is also a sole trader).

I have been offered a directorship of a business that I have been working for on a freelance basis since 2017 - I will become the sole director as the current director wants to stand down. I am hoping to move mortgages/potentially move in around 18 months time when the current fixed term mortgage runs out, and I am very worried that if I take on the directorship I'll be unable to do this as I will have only been a director for 1 year.

The company has been running for over six years, and I expect to earn the same as I would on a self-employed basis - so my overall earnings won't decrease, just the way in which I earn them.

Any advice on whether the change would impact on a mortgage application would be incredibly appreciated.

Many thanks
Laura

DavidT67

You need to go to HMRC online and print out your SA302 forms for last three years for you and your partner. This gives a true picture of your joint taxable income.

Many mortgage providers will then use these to workout what mortgage is avoidable for you as a one-man Ltd Company / Self- Employed trades person.

NB The company's longevity and 'profitability' aren't a factor as it's you the individual they are assessing the creditworthiness of.

Hope this helps

ACG

You will have one years trading as the director so there should be options.
You may (or may not) struggle to get normal rates.

We had one last year where the bloke bought an existing business with 1 years trading we managed to get the lender to accept his income. But we also had a very similar case go to the same lender where the underwriters would not accept it - when I say similar there were differences but I say it a lot on here, the devil is in the detail.

But regardless, with one years trading there should be options, it is more about the rate you will end up getting.

lauralizzy1

Thank you both.

DavidT67 - yes, I agree with what you're saying. The problem I had was that the mortgage lenders didn't like the fact I had so many different ways of earning money - I think they saw me as unreliable, and so would only accept the most consistent way I earned money - which was my income as sole trader.

ACG - so in essence, I will have options, but it's unlikely to be straightforward because of the lack of history working as a director of a ltd company? I think that is what I expected! Do you know how many years you would need for a bank to not have too many problems to consider you creditworthy? Is it 2 years the same as being a sole trader?

LRmortgage

You say you are going to be a director, will you also be a shareholder?

You also say that the money will be similar to what you are earning freelancing for the same company, I hope as you are taking on the responsibility and liabilities of becoming the director there is something more in it for you?!?!?

lauralizzy1

Thank you LRmortgage

I will also be a shareholder, yes - from what I understand I will own all the shares.

With regards to your second point - I concur! Am trying to weigh up the options ...

LRmortgage

Please be careful and if you are taking over as the director and sole shareholder I would be asking an accountant to be doing due diligence for me and a solicitor to sort out the legal side.

Has the company got any debts, liabilities, contracts that you are taking over?

Are you paying the current owner?

Sorry if I’m teaching you to suck eggs, just trying to look out for you.

ACG

1 years there are options - possibly normal rates, possibly a little above.
2 years is more or less where the bulk of the market will lend.
3 years is where the remaining lenders will kick in.

lauralizzy1

ACG wrote: »

1 years there are options - possibly normal rates, possibly a little above.
2 years is more or less where the bulk of the market will lend.
3 years is where the remaining lenders will kick in.

Thank you!!!

lauralizzy1

LRmortgage wrote: »

Please be careful and if you are taking over as the director and sole shareholder I would be asking an accountant to be doing due diligence for me and a solicitor to sort out the legal side.

Has the company got any debts, liabilities, contracts that you are taking over?

Are you paying the current owner?

Sorry if I’m teaching you to suck eggs, just trying to look out for you.

TBH I'm completely new to this, so any advice is gratefully received. No debts, liabilities. A couple of contracts that I'm currently managing on a freelance basis but they'll be finished soon. I'll be paying a nominal amount for thee shares - say £1.

There's not much in the company other than the name - I like the work and would happily do it, but I'm trying to work out if the finances/life admin aspects balances out as I'm doing the stuff I like already! It might be that its just not worth it Plus, as you say, I'd probably like to earn a bit more / see some benefits more given the extra responsibilities.

I'll look into getting an accountant to check over the books and a legal person to advise on the shares. Sounds sensible