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.
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.
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.
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.
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.
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?
We know that many people are, to a greater or lesser extent in debt at some point in their lives. Sometimes due to personal circumstances, this can spiral out of control. When this happens, it can feel that once you have paid all your bills at the start of the month, there is little or no disposable income left.
A common route that most applicants choose to go down is a debt consolidation remortgage. As an expert Mortgage Broker in Liverpool, we have chosen to explore a case study on debt consolidation.
Julia had been through a divorce and her children had moved out to start their own lives. Her debt had started to build up with legal bills after her divorce and slowly increased over the years, having to live on one income with unreliable maintenance from her ex. Finally, her daughter became pregnant quite young, and as any mum would, she tried to help her daughter out financially, even though she couldn’t really afford it.
Luckily Julia had paid her mortgage off some years ago so that asset was there to potentially borrow against. Her take-home pay was £1100 per month, and her credit commitments were taking up more than half of this.
She had not missed any payments on credit commitments, but she had no emergency fund, and while Julia’s credit score wasn’t too bad, she was no longer able to obtain new zero% credit cards to transfer her balances.
She was recommended to me to see if there were any options available to improve the quality of her financial life.
When I met, Julia was feeling quite low. She had cut back on all luxury spending, and it was evident that she was desperate to take ownership of her financial situation before it got any worse.
We explored the possibility of a personal loan, but the debts had mounted too high for that. Julia had no family members who were able to help; downsizing was not an option, and we agreed the right way forward would be to remortgage the house to pay off the debts and reduce her outgoings.
We managed to find a lender to meet Julia’s requirements. Although it has to be said given her low income, it was hard to find a lender who would lend her enough. We managed to get her an agreement in principle, but regrettably, when we submitted the formal mortgage application, it was declined.
The reason the case was declined was that the Underwriter who assessed the situation felt that because Julia had been using cards to pay off other cards and not then closing down the cards. When she had transferred balances, there was a high risk that she should re-offend and rack up debts again.
Julia was devastated. She understood the concerns, but in her eyes, she had accepted she had a problem, and by engaging us had taken a positive step to remedy her position. To her, their risk was minimal – the loan to value was under 40%, she had never missed any payments, and if the remortgage was successful, she could be a whopping £500pm better off.
All the above was indeed correct, but clients don’t always appreciate that taking a property into possession is the last thing a lender wants or needs. It reflects poorly on the numbers they are required to report each year. In the event of repossession, they have the considerable hassle of securing the property, ensuring it, marketing it, selling it, and paying the surplus of equity (if any) back to the previous owner.
As such, if there is reasonable doubt, then an Underwriter has the discretion to decline an application, even if it is within their published lending criteria.
We pride ourselves on getting our recommendation right the first time, but this one didn’t work out that way due to the Underwriter’s adverse comments at the full application stage. However, we knew this remortgage wasn’t as risky as the lender had made out, and it ought to be the right outcome for her.
Julia perhaps felt like she wanted to give up, but we went back to the drawing board to find a different lender. Sure enough, we found one and armed with the information we had from the previous lender. We were able to provide better supporting comments for the second roll of the dice, and luckily this time, it was successful.
Julia didn’t take this step lightly. She has now secured debt that was previously unsecured and may end up paying back more interest overall, depending on how quickly she can get the mortgage paid off.
However, in the short term, this has worked well for her. She now has had the burden of debt relieved from her shoulders, her credit score has improved, and she can save a little each month.
The savings we were able to help her make amounted to over 50% of her net take-home pay monthly and it has changed her life. Upon completion of the remortgage, Julia cut up all her credit cards except one to use in emergencies only, and she has now got her financial life back on track.
If you are like Julia struggling with debt but are a homeowner with equity please get in touch with us and we will see what we can do. We would rather that you contact us before the situation gets out of hand. The earlier you take back control of your finances the better you will feel about things. We offer debt consolidation Remortgage Advice in Liverpool & surrounding areas along with a free initial mortgage consultation.