Nightmare finding a mortgage for £270k with £83k income

Zig33

My situation is a bit complicated. We have an offer accepted on a £300k house with a 10% deposit. Up until April this year I was a director in the family business. I then switched to a salaried employee on £48k (based on the amount of money I normally make for the business each year) so I stopped being a director at that point. So I have 4 months payslips as a salaried employee. Stupidly I was unaware that I also had a 25% share in the company. 

My mortgage broker is saying that because of this share I will be classed as self employed. This would be based on 20-21 and 21-22 and completely ignore my current salary. These figures are much lower and would not cover the current mortgage application. I have suggested giving up my shares in the business but he said that at this stage it won’t make a difference. Is there any way it could? Would it be possible to have it backdated to give up the shares when I stopped being a director?

In hindsight I’m now wondering if it was a bad idea becoming a salaried employee at the company and I don’t know what to do moving forward. If we lose this house what is the best route for me moving forward? Stay on this salary then when I have more months in employment I will be classed as employed or become a director again and receive the same salary but partly made up of dividends? Or will having a period as employed mean that if I go back to being a director I will be back at square 1 and have to build up 2 more years of self employed history? I’m very confused. 

To complicated matters I didn’t file self assessment when I was a director as I thought I didn’t need to as I was taxed at source. (That’s the info I found online) I have now filed for 21-22 so I have an SA302 for that year but not for 20-21. Broker is saying lender require SA302’s for both years. 

My partner has an income of £35k. There may be the possibility to up the deposit to 15% if that helps. 

Any advice would be greatly appreciated. Feeling very out of my depth. 

K_S

@zig33 From the limited info in your post, the immediate way forward would be to see what is the maximum you can borrow based on last 2 years company numbers and your wife's income.

Depending on the lender that could be based on one of the following -

- salary + dividends
- salary + net profit (after taxes)

If you have an accountant, it gives you a better chance at finding a lender and getting it through underwriting.

In any case, the chances of finding a lender that will take your 48k salary as income is vanishingly low given that you own 25% of the company and were a director until a few months ago.

Your best chance of maximising borrowing (may or may not meet the number you need) is probably with a good experienced broker that knows how to work with self-employed income. If your current one doesn't fill you with confidence, ask your friends/family/colleagues for a recommendation. 

With regard to your 2020-21 tax returns, as a Director, generally speaking, you're only required to file one if you drew any dividends from the company. If you received income from the company under PAYE only then there's no requirement to register for self-assessment.

Zig33 said:

My situation is a bit complicated. We have an offer accepted on a £300k house with a 10% deposit. Up until April this year I was a director in the family business. I then switched to a salaried employee on £48k (based on the amount of money I normally make for the business each year) so I stopped being a director at that point. So I have 4 months payslips as a salaried employee. Stupidly I was unaware that I also had a 25% share in the company. 

My mortgage broker is saying that because of this share I will be classed as self employed. This would be based on 20-21 and 21-22 and completely ignore my current salary. These figures are much lower and would not cover the current mortgage application. I have suggested giving up my shares in the business but he said that at this stage it won’t make a difference. Is there any way it could? Would it be possible to have it backdated to give up the shares when I stopped being a director?

In hindsight I’m now wondering if it was a bad idea becoming a salaried employee at the company and I don’t know what to do moving forward. If we lose this house what is the best route for me moving forward? Stay on this salary then when I have more months in employment I will be classed as employed or become a director again and receive the same salary but partly made up of dividends? Or will having a period as employed mean that if I go back to being a director I will be back at square 1 and have to build up 2 more years of self employed history? I’m very confused. 

To complicated matters I didn’t file self assessment when I was a director as I thought I didn’t need to as I was taxed at source. (That’s the info I found online) I have now filed for 21-22 so I have an SA302 for that year but not for 20-21. Broker is saying lender require SA302’s for both years. 

My partner has an income of £35k. There may be the possibility to up the deposit to 15% if that helps. 

Any advice would be greatly appreciated. Feeling very out of my depth. 

ACG

As an underwriter, it looks like you are trying to avoid showing your actual income and getting a few months inflated wages. 
Being completely honest, I would not take this case on. You may be completely genuine, but the problem is that where situations like this arise probably 9 out of 10 are not genuine. 

I do think this can be placed, but it probably needs the broker to earn their income and put in some ground work speaking to lenders. 

simon_or

You've got yourself into a real pickle OP.

I'm somewhat in a similar situation as you - 49% owner of a limited company, was director until earlier this year (had to take myself off as my new public sector employer would not allow being a director) but no other change with respect to my involvement in the company.

My broker had no issues with getting me a mortgage based on the normal self employed evidence (in my case that was salary plus dividends averaged over last two years as shown on SA302s)

Theyre not going to take your 'salary' like they would for your wife, not now and not even a year later.

ACG

simon_or said:

You've got yourself into a real pickle OP.

I'm somewhat in a similar situation as you - 49% owner of a limited company, was director until earlier this year (had to take myself off as my new public sector employer would not allow being a director) but no other change with respect to my involvement in the company.

My broker had no issues with getting me a mortgage based on the normal self employed evidence (in my case that was salary plus dividends averaged over last two years as shown on SA302s)

Theyre not going to take your 'salary' like they would for your wife, not now and not even a year later.

They probably would in a year, probably even in 6 months. 
But it definitely wont be for every lender. 

simon_or

Thanks ACG, that's very interesting.

I didn't know that there are banks who will treat you as PAYE even if you have 25% shareholding, I thought you automatically fall into the self employed category where they'll want to check that any salary is actually sustainable based on the company accounts.

Is it the same for 49%?

Zig33

Thank you for all your comments I really appreciate it. I’ve learnt a lot over the process and I should have understood my finances better before starting this. After 6 weeks of trying and speaking to quite a few brokers I think have to accept that it’s not possible at this time. Unfortunately the company’s net profits won’t quite add up to enough (covid related) but that was a potentially interesting route.

We do have an accountant who has worked with the company since it started in 2002.

Would anyone be able to advise me about what the best thing could be for me moving forward? Should I just become a director again and go the self employed route? Salary plus dividends? 

Or stay on my salary? I expect to make the same amount (around £48k) for the company this year and next I just don’t know the best way to approach it. 

It’s also looking like 1 of the shareholders might leave the business so would it be better for my share to be 25% or 50%?
Is it easier to go based on directors salary and dividends rather than salary plus share of net profits?

I suppose if I do go back to being a director this the stint as employed would just be included in my self assessment for the year along with the remaining months as a director with salary and dividends. So once I had the SA302 for the 22-23 I would be able to able for a mortgage?

Thank you if you have read everything. Very grateful for this forum!!

ACG

simon_or said:

Thanks ACG, that's very interesting.

I didn't know that there are banks who will treat you as PAYE even if you have 25% shareholding, I thought you automatically fall into the self employed category where they'll want to check that any salary is actually sustainable based on the company accounts.

Is it the same for 49%?

I think there are lenders who will go up to 30% or possibly 35%. 
But there are lenders who can accept your PAYE income with 49% ownership. Just expect to jump through the same hoops as a self employed person - accounts, business bank statements, maybe an accountants reference to explain why you are PAYE rather than paye/dividends. 

If it has just changed, like in the original post it becomes more difficult due to the potential for fraud. But if you have a P60 or 2, then it becomes a whole lot easier. 

Tucosalamanca

My thoughts are that you either need a much closer relationship with your accountant, or you need a new accountant.

If you're not already, consider spending a few hours each year talking about the business, your plans, aspirations and where you currently are in life.
I think most of your issues could have been anticipated and overcome with just a little bit of guidance.
Hope it works out for you!

K_S

@zig33 Frankly speaking, it would be really stupid of me to give you any advice based on the limited information in this thread and even more so if you followed it!

Just a few very general thoughts -

1. Your income can potentially still be considered as 'self-employed' even if you are a non-director shareholder with significant shareholding.

2. Accountants don't always know what is best with respect to self-employed mortgages and tax-efficiency can often work at counter-purposes to maximising borrowing. For example a client of mine minimises corp tax by using retained profits to directly pay into his SIPP. While this is great for reducing his tax bill and retirement planning, he was essentially limited to just 2-3 lenders who would look past the low net-profit number and disregard the company pension contributions. 

3. Limited company director lending has come a very long way in the past decade and there are plenty of lenders that will exhibit common sense when lending to directors. Depending on how your affairs are arranged you may not always get the 'best rate' in the market but just consider that as a small con to all the advantages of working through a ltd co. 

You've already spoken to a few mortgage brokers who now know your circumstances in depth. I would recommend thinking over whom you felt was most competent with respect to self-employed cases and ask them on what best to do to get a mortgage in the near/medium term.

Zig33 said:

Thank you for all your comments I really appreciate it. I’ve learnt a lot over the process and I should have understood my finances better before starting this. After 6 weeks of trying and speaking to quite a few brokers I think have to accept that it’s not possible at this time. Unfortunately the company’s net profits won’t quite add up to enough (covid related) but that was a potentially interesting route.

We do have an accountant who has worked with the company since it started in 2002.

Would anyone be able to advise me about what the best thing could be for me moving forward? Should I just become a director again and go the self employed route? Salary plus dividends? 

Or stay on my salary? I expect to make the same amount (around £48k) for the company this year and next I just don’t know the best way to approach it. 

It’s also looking like 1 of the shareholders might leave the business so would it be better for my share to be 25% or 50%?
Is it easier to go based on directors salary and dividends rather than salary plus share of net profits?

I suppose if I do go back to being a director this the stint as employed would just be included in my self assessment for the year along with the remaining months as a director with salary and dividends. So once I had the SA302 for the 22-23 I would be able to able for a mortgage?

Thank you if you have read everything. Very grateful for this forum!!

simon_or

ACG said:

simon_or said:

Thanks ACG, that's very interesting.

I didn't know that there are banks who will treat you as PAYE even if you have 25% shareholding, I thought you automatically fall into the self employed category where they'll want to check that any salary is actually sustainable based on the company accounts.

Is it the same for 49%?

I think there are lenders who will go up to 30% or possibly 35%. 
But there are lenders who can accept your PAYE income with 49% ownership. Just expect to jump through the same hoops as a self employed person - accounts, business bank statements, maybe an accountants reference to explain why you are PAYE rather than paye/dividends. 

Thanks ACG, that was my understanding as well. I misunderstood your earlier post to mean that the lender would simply go off of my payslips like they would with someone working for the NHS for example.