Business posts a loss does this affect me adversely?

Beatle_Ray

Hello, some advice please, for the year ending December 2021 my business posted a £6500 loss, this was due to me taking out too much in salary and my accountant tells me that this will affect my ability to get a new mortgage within the next three years, assuming the next three years do not post another loss, 2022 should not but of course business is challenging already for 2023, my current mortgage has eight years and nine months to run and i currently owe £87K, the property is currently worth approx £430, the current deal runs out in June 2023, it did cross my mind to downsize to a smaller size property and reduce the mortgage by half and keep some of the equity, a £40K mortgage is doable for me and would take a lot of pressure off me, so, given the poor business performance am I now in a bad place and if so what are my options, thanks in advance.

dunstonh

Hello, some advice please, for the year ending December 2021 my business posted a £6500 loss, this was due to me taking out too much in salary and my accountant tells me that this will affect my ability to get a new mortgage within the next three years

Correct.
Lenders will vary and one year in isolation with a viable explanation with the right lender may get around it but "in general", lenders look at trends.  That includes retained profits.

To have got the stage of using salary to create a loss, suggests there is no longer any retained profits in the company and insufficient profit to pay dividends.    That in itself is going to be a concern to a lender and they will look at the trend over the rolling three years.  If each of the three years has shown a decline, then lenders are going to be tougher on the lending criteria.

Product transfers do not require you to go through underwriting again.  So, if your current lender offers you a half reasonable deal, then that is often the best way when you have a limited a company.

Beatle_Ray

Thanks for the reply, i think the way forward would be to leave more in the company, which has been difficult, but the two preceding years did return a very small profit, the first part of 2021 were very tough for obvious reasons but 2022 was much better, 

mi-key

I agree with dunstoh. If you don't need to move, when your current deal is running out arrange a new one with your current lender. They should just move you over to it with no affordability checks.

If you plan to move though, even if you are porting your existing mortgage and borrowing less, they will treat it as a new application and go through all the checks and want to see the last 2 or 3 years accounts, and if you have are showing a loss may not even lend to you. 

I am in a similar position. If I stay where  I am my lender is happy I can afford the mortgage ( have never missed a payment, and have around £250K equity in the property with less than £100K on the mortgage, so very low risk for them, also have enough in savings to pay the mortgage for more than two years... ). However if I wanted to move, because my business income has dropped over the past few years, although still making a profit every year, they wouldn't lend me as much as I am currently borrowing because I wouldn't pass the affordability checks !!! 

Postik

To be honest, even if you're profitable it's a PITA applying for mortgages because your accountant may well be helping you make your income look lower for tax purposes (I'm talking about tax avoidance rather than evasion).  I've had instances where lenders are twitchy because I made less profit last year than the year before.  Which is odd because I don't believe that every business makes more money every single year without fail.

Unless you are going to end up with a terrible deal I would just do a product transfer with your existing lender.  I did this for years and it was far easier than preparing all of the information for a new lender, only to be knocked back and have to do it all over again until I found one that wasn't pedantic.

ACG

If next years books show a profit you will have options.