Self Employment, Re-investing & Restricted Mortgage Options
Some business owners will look to re-invest in their companies regularly, as a means to help them continue their growth. During these periods of growth, they won’t always pay themselves the amount that they should, which in the end can harm them obtaining a mortgage.
For self employed mortgage applicants who are in this kind of situation, there is self employed mortgage advice in Liverpool available to help them out, especially if they can relate to the case study discussed below.
Minimal Expenditure Shouldn’t Mean Minimal Borrowing
Randall was a HGV driver who had been let go from his job due to redundancies and decided to start his own business within the crafting industry, as he had noticed there was a gap in the market.
He and his wife sold their family home and they moved in with his kids, to his in-laws, setting up his business in their garage.
He used the money that he made from the redundancies and the sale of their house to purchase some stock that would help kickstart his self-employed career. It took awhile for it to take off, but after some time, he started to turn a profit.
Randall and his family were able to drastically minimise their expenditure so that their business could grow at a much quicker pace. Because of their living situation, they had no rent or mortgage to pay, and Randall was only paying himself a small salary that was in line with the annual tax-free allowance.
Fast forwarding around 3 or 4 years and the business now had its own physical location and was making almost £100,000 net profit. Even still, with minimal expenditure, Randall continued on with not paying himself the proper way.
The time eventually came for Randall and his family to buy a new home, but his bank was only willing to lend him £40,000 for a mortgage. It was at this particular point that he approached us for assistance.
Affordability is Much More Than Just a Salary
Randall’s bank had let him down, due to the fact that he was only paying himself around £10,000. Despite the fact his company was making profits, he and his family could just about live without a dividend from his limited company.
Unfortunately, the vast majority of high street mortgage lenders (with the odd exception) only assess affordability based on declared earnings. This typically will be salary + dividends, averaged over 2 years, though for Randall, he could only be assessed on salary alone.
Retained Profit Can Be Just as Important
Though it took some searching, we were able to find a mortgage lender who was willing to assess Randall’s situation in a way that would benefit him. This mortgage lender looked also at his retained profits, not penalising him for choosing not to pay himself more.
This mortgage lender had absolutely no interest in the fact Randall was not drawing out a dividend he had no need for, and agreed to lend him up to £400,000. Randall did not need this full amount, as he was only looking to borrow much less than this, though it showed he could.
A Low Salary Versus Difficult Mortgage Lenders
Randall was not a typical self employed applicant who would take out a self employed mortgage in Liverpool, he was seriously looking to minimise the amount of tax he paid. He made a lot of personal sacrifices in terms of income, so that his business could grow.
He felt that his bank had no interest in hearing or understanding the complete story about the growth of his company and took a blinkered view of his financial situation, based on income that had been declared to the Inland Revenue.
Liverpoolmoneyman were able to thankfully help him find a mortgage lender that took a much more understanding view. Randall’s application was accepted and he now happily lives in a beautiful family home with his wife and children, where they belong.
We’ll Try to Help You On All Accounts
If you find that you are in a similar position as Randall or are a self employed mortgage applicant who is looking to take out a self employed mortgage in Liverpool, in the future, and needing self employed mortgage advice in Liverpool, please do feel free to get in touch with us.
It’s okay to ask for help and sometimes you do need a specialist mortgage advisor in Liverpool like us to help you secure the best mortgage deal, just like our customer was able to achieve his family home goals that he was struggling to obtain.
They made a great deal of sacrifices personally to grow his new business, and within a few years, it was starting to make a good profit. He was able to keep his expenditure way down and kept re-investing in his limited company.
He had a solid business with a six-figure profit, but hardly any declared income because of his decision to limit the money he would take home. Surely all mortgage lenders should be willing to consider business people who are this careful with their money?
Date Last Edited: November 22, 2023
