Help with Mortgages
One of the biggest myths in the property market is that obtaining a mortgage for someone classed as self-employed is more difficult than obtaining a mortgage if you are PAYE employed.
There are a lot of these types of rumours that constantly go around the property industry.
The story normally starts with ‘my mate john down the pub told me’…. Now with all due respect, John might be a lovely person but I doubt it he’s qualified to give advice on mortgages, tax or pensions as he may well make out.
Common issues
With the world becoming more complex than ever, so do people’s lending requirements.
The latest number of self-employed people as of August 2022 is £4.2m. This has reduced since Covid but looks to be on the rise again.
With complex personal circumstances come complex mortgage requirements and not everyone fits in the box their bank wants them to.
The biggest problem we see when looking at self-employed people is the fact that their personal tax income does not show enough for the mortgage they would like to obtain. This is mainly because most business owners are savvy and retain their profits in their company without the need to draw huge salaries or dividends to fund their lifestyle.
Solutions
Francisco Mesa Baya, Director
There are lenders in the market that are excellent at providing mortgages in these circumstances and have built their whole offering to support the entrepreneurs of the world.
The best solution to this problem without having to pay an excess tax bill is to use a lender that will accept the relevant share of company profit to assess income. This means if you are 100% the owner of a company, you would be able to use 100% of the company's profit as your income when looking at mortgage options.
This creates a number of solutions for you as an LTD company director:
- It allows you to keep your personal tax liability lower, without the need to draw the dividends
- It gives you the borrowing power as if you were drawing all of your business profit as a salary
- This solution allows you to keep any cash in the business for cash flow purposes, hence keeping the business in a strong position
During this time of mayhem, it is key to get professional advice.
Mesa Financial love working with limited company directors. They have made it their business to understand the niche advice areas and being business owners ourselves we understand the issues other business owners face when looking at their mortgage options.
The Mesa Financial service
There can be extreme complexities to consider when looking at financial positions and it is key to get the correct advice based on your individual circumstances.
If you are looking for a local trusted adviser, please reach out to one of their experts.
A case study:
Borrowing for business purposes
In this case study, the client needed to borrow some money to help accelerate growth within their business. They had already doubled the business turnover and needed a large amount of capital to keep up with the huge amount of growth.
The client’s goal was to build the infrastructure of the business to support the next level of growth. As the client was borrowing for business purposes, this can be a huge red flag for a number of mainstream lenders.
Most lenders will not lend for this purpose, but given the majority of our clients are LTD company directors we knew exactly what bank to approach for this borrowing.
The result for the client:
- £1.38m loan – enough to cover the purchase, stamp duty, legal costs and other associated fees
- Total lending was more than 10x the director's salary and dividend
- Interest rate – 0.60% over base rate
- Total LTV – 60%
- Interest Only
- Funds used for business purposes
Mesa Financial
77a Richmond Road, Twickenham TW1 3AW
Francisco Mesa Baya, Director
