Coventry Lending Criteria - Latest Year Net Profits Where Big Difference from Last Year

sherbert1964

Hi, 

One for the mortgage brokers please!

We are looking to take out a new loan with Coventry BS. I am a Director of own ltd co and they are one of the few lenders who'll consider most recent year share of net profit before dividend and corporation tax when looking at affordability.

According to their lending criteria, they'll consider most recent year but will deep dive if the net profit this year is significantly different from last year, which in my case, it is.

This year will be a net profit of £130,000 when last years figure was £44,000 so a 200%+ increase in net profit.

There are various reasons for this including improved market conditions and increased marketing spend including sponsorship of a local primary school (I am an estate agent and run an estate agency). 

I therefore have some questions:

1) Will Coventry consider this increased net profit
2a) Will I have to prove this increase to net profit is sustainable
2b) Are the reasons above likely to be proof enough of sustainable growth?
2c) If not, what kind of reasons would likely show sustainability and therefore be approved?

Any help gratefully appreciated

Happy holidays and happy NY to all 

MWT

I'm sure the brokers will give you some answers, but to help frame the question, to what extent do you need the net profit they use to be higher than the £44,000 of the previous year?

I'm sure they will be looking for one-off events that have contributed to the profitability as well, so being able to show that the profits are from normal trading, not exceptional events should help...

sherbert1964

MWT said:

I'm sure the brokers will give you some answers, but to help frame the question, to what extent do you need the net profit they use to be higher than the £44,000 of the previous year?

I'm sure they will be looking for one-off events that have contributed to the profitability as well, so being able to show that the profits are from normal trading, not exceptional events should help...

@MWT It's crucial, we need the max affordability and therefore need to borrow off the most recent year, and average of the 130k and the 44k wouldn't be enough

ACG

1) They will consider it. 
2a) I am not sure you can prove it, but they will want an explanation. 
2b) Debateable. If this was my case, I would be saying its a bit of a punt just to prepare you for the worst. 
2c) I did a case for a tattooist (my cousin), his income doubled. He had won a some big awards in the industry. He is technically an influencer (although he cringes if we mention it) on instagram. We could evidence the award, we could evidence the increase in following - and they could see his work and that he is good at what he does. 

I did another case with them for a golf pro. He had been based in Dubai and had limited address history. He became a golf pro at a golf club. He had gone from near enough nothing (as he put through expenses of buying the business) to whatever his income was. As he had bought the business off the previous golf pro, we could also evidence his income (albeit a little bit lower) to show that this jump was not a one off, it was actually the drop that was a one off. 

With both of those, there was evidence that their incomes were likely to stay higher. In all honesty, I dont think sponsoring a local school is going to quite cut it... Otherwise all it takes is one of your competitors to offer a bit more. Improved market conditions is also a bit of an iffy one. The budget means stamp duty goes up in April and that could have a negative impact. 

I will be completely honest in that the cases I have sent to coventry in this situation have all been really solid cases (in my opinion). I attached a covering letter with the case explaining it to them and they went through without touching the sides. 

I think you need to look at where your income has increased. Saying you have sold more houses is not a good answer (in my opinion) as you are at the mercy of your competitors and the market as a whole. And if that is all that has happened you hare taking on a massive risk especially as the next few years are very dubious (I am prepared for a busy year and a quiet year for the next 2-3 years). 

If you have altered your business or done something differently to affect that income, that helps. As an example, did you partner up with a broker or solicitor to offer kickbacks? Did you change to take on managing rentals and built that up? Did you open a new office?... Im not trying to put words in your mouth here btw. I think you need to be honest with yourself, is it sustainable? If not, you dont want to be that person with the massive mortgage when the world goes to pot like in 2008 which lets face it could happen at any time in the next couple of years. 

I didnt realise I wrote so much! You will have probably paid off the mortgage by the time you read it all haha. 

MWT

sherbert1964 said:

MWT said:

I'm sure the brokers will give you some answers, but to help frame the question, to what extent do you need the net profit they use to be higher than the £44,000 of the previous year?

I'm sure they will be looking for one-off events that have contributed to the profitability as well, so being able to show that the profits are from normal trading, not exceptional events should help...

@MWT It's crucial, we need the max affordability and therefore need to borrow off the most recent year, and average of the 130k and the 44k wouldn't be enough

I hope you get what you want, but from a business perspective I'd caution that you need to be really sure you can sustain this level of income if you are going to stretch to a much larger mortgage than you could get based on the previous year.

Especially with the way market conditions are likely to change after April...

amnblog

Coventry, in common with the majority of Lenders will consider your profit after Corporation Tax, not before [and you must own at least 20% of the business].

They say.... "To calculate gross annual income, we take the total of the applicant's share of the latest year's net profit of the company after deduction of Corporation Tax (excluding dividends) and their salary."

sherbert1964

amnblog said:

Coventry, in common with the majority of Lenders will consider your profit after Corporation Tax, not before [and you must own at least 20% of the business].

They say.... "To calculate gross annual income, we take the total of the applicant's share of the latest year's net profit of the company after deduction of Corporation Tax (excluding dividends) and their salary."

Yes right you are! This amount would still work for us, maybe a slighly higher multiple, 5x perhaps