UK Mortgage Advice For Self Employed Please :)

[Ill Be Back]

Hi everyone. I didn't want to ask this question here but I have wanted to be able to borrow money from a lender in order to buy a property for a few years now.

I called 2 mortgage brokers and basically they didn't want to talk in much detail as I have less than one years accounts. The answers they gave were jargon to me :(

So I started a limited company on December 2018. Hired an accountant immediately.

For the entirety of 2019 I didn't pay myself any wages. In terms of 2019 my accounts will show up as nil. I believe that is a year wasted correct me if I am wrong.

So the first wage I paid myself was £719.00 (advised wage from accountant) This was paid from March 2020 - June 2020 so that was 4 payments of £719.00. I have since adjusted my wage to £732.00 starting from July onwards (also advised wage from my accountant) This means that as of today I have 5 months worth of wages.

I spoke to my accountant the other day and explained to him that in a year or 2 from now I will need to be able to borrow money from a lender/bank in order to purchase a property with my partner. I will need to borrow around £80,000. My partner is in full time employment and she earns around £19,000 a year and she is already able to borrow around £80,000 - £86,000 depending on the property.

My accountant advised me that I needed to speak to a mortgage broker and then we can adjust the monthly wages necessary e.g monthly salary of £1600.00 per month to match my partners wage.

I called a mortgage broker today and she informed me briefly that I can keep my wages as they are and in a year the money can be taken out of the dividend? I didn't quite understand what she meant by that. Can anyone explain this to me. Her advice was contradictory because over a year ago I was told by a mortgage adviser who works for Nationwide that lenders will look at 2 to 3 years worth of wages and average out my salary. Not sure who to believe at this point as another broker told me to ask my accountant who told me to ask a broker :(

Does anyone have any advice on how the self employed can borrow.

Thanks

[JamesNorth101]

You simply pay yourself a wage that is equal to the personal allowance and then take anything additional out as dividends. That is really standard

[chimera]

First piece of advice, don't bother with High Street Lenders. It is extremely unlikely that any High Street Bank will have suitable product. Their lending criteria is strict enough for ordinarily employed people.

Speak to your accountant about dividend payments. Ordinarily Company Directors will pay themselves via dividends (they are a share of company profit and subject to income tax). Of course you need to be making a profit to take dividends. If any profit is left over this is called retained profit.

There are mortgage lenders who will consider PAYE, dividend and retained profit for a company director applying...you just need to find the right IMA/ Broker. You need a broker to tell you what minimum criteria you need to apply, you then take this information to your accountant who will advise how/ if you can achieve it.

A good broker will be able to tell you exactly what you need to do. If they don't...just try another.

I would have a look for a local independent mortgage firm local to you. Just remember they are far more likely to look into your case if you fall under the category of “I want to buy a house as soon as” as opposed to “I am wondering if I can get a mortgage”. Its frustrating but they get so many enquiries they will focus on the ones that are raring to go. Also expect a big fee (can usually be added to your mortgage balance, usually worth paying anyway).

[Ill Be Back]

Originally Posted by JamesNorth101

You simply pay yourself a wage that is equal to the personal allowance and then take anything additional out as dividends. That is really standard

Hi James, thank you for your response. It's just been very confusing recently as I have heard quite a lot of different information. I'm sure this is really straight forward.

Forgive me for sounding dumb, which I am in terms of business but when you say pay a wage that is equal to personal allowance does this mean it can be a small amount such as £732.00 per month and any excess goes out as a dividend?

Also let's say I want to borrow next year. Will I need to have a high dividend to show that my business is growing? If so how much is decent?

I do apologise because I have always thought that lenders look at wages when it comes to lending money out. Which is why I always joke to my partner and tell her that I'm going to just get a job at McDonalds for 3 months just for the pay slips.

Thanks James

[Ill Be Back]

Originally Posted by chimera

First piece of advice, don't bother with High Street Lenders. It is extremely unlikely that any High Street Bank will have suitable product. Their lending criteria is strict enough for ordinarily employed people.

Speak to your accountant about dividend payments. Ordinarily Company Directors will pay themselves via dividends (they are a share of company profit and subject to income tax). Of course you need to be making a profit to take dividends. If any profit is left over this is called retained profit.

There are mortgage lenders who will consider PAYE, dividend and retained profit for a company director applying...you just need to find the right IMA/ Broker. You need a broker to tell you what minimum criteria you need to apply, you then take this information to your accountant who will advise how/ if you can achieve it.

A good broker will be able to tell you exactly what you need to do. If they don't...just try another.

I would have a look for a local independent mortgage firm local to you. Just remember they are far more likely to look into your case if you fall under the category of “I want to buy a house as soon as” as opposed to “I am wondering if I can get a mortgage”. Its frustrating but they get so many enquiries they will focus on the ones that are raring to go. Also expect a big fee (can usually be added to your mortgage balance, usually worth paying anyway).

Thank you Chimera,

I agree with High street lenders being difficult. Me and my partner nearly closed a deal a few months ago on a flat we wanted. We could only apply for a mortgage in her name as she's in regular employment but because the ground rent and service charge was over £2000,00 a year they would only lend her £60,000. Had the service charge been £1000,00 a year they would have given £82,000!! A grand makes a huge difference hey.

I already spoke to my accountant about how I should pay myself but I believe he wants me to go under the radar which is why he suggested £732.00 a month which means no tax. I am making enough profit for sure and any money left over is just building up in the company.

Here's the thing. I don't know how good my accountant is. He never asked me how many income streams I had e.g cash payments, eCommerce etc. Not once in any meeting did he talk about how I should pay myself which is why 2019 shows as nil. Only when I questioned him in February this year did he set up a PAYE system. I am more on the ball with it now because me and my partner do need at least £160,000 for a property.

Also you're spot on when you say that a broker wants you to be the "I want to buy a house as soon as" type of person. Unfortunately I am the latter and it feels like I'm in limbo.

All in all should I be building up money in the company or should I be taking a bigger wage? What is the best case scenario in your opinion.

Thanks again

[Ill Be Back]

Originally Posted by chimera

First piece of advice, don't bother with High Street Lenders. It is extremely unlikely that any High Street Bank will have suitable product. Their lending criteria is strict enough for ordinarily employed people.

Speak to your accountant about dividend payments. Ordinarily Company Directors will pay themselves via dividends (they are a share of company profit and subject to income tax). Of course you need to be making a profit to take dividends. If any profit is left over this is called retained profit.

There are mortgage lenders who will consider PAYE, dividend and retained profit for a company director applying...you just need to find the right IMA/ Broker. You need a broker to tell you what minimum criteria you need to apply, you then take this information to your accountant who will advise how/ if you can achieve it.

A good broker will be able to tell you exactly what you need to do. If they don't...just try another.

I would have a look for a local independent mortgage firm local to you. Just remember they are far more likely to look into your case if you fall under the category of “I want to buy a house as soon as” as opposed to “I am wondering if I can get a mortgage”. Its frustrating but they get so many enquiries they will focus on the ones that are raring to go. Also expect a big fee (can usually be added to your mortgage balance, usually worth paying anyway).

Sorry just read the middle bit again. Sounds like I need to speak to a good broker and then inform my accountant. Guess I will need to try another broker soon. Thanks

[chimera]

Originally Posted by Ill Be Back

Sorry just read the middle bit again. Sounds like I need to speak to a good broker and then inform my accountant. Guess I will need to try another broker soon. Thanks

The right broker makes the process so simple. You will know when you find a good one. All you do is fill in a few forms and fire lots of paperwork to them (and it will be lots).

Sounds like you could do with having another chat with your accountant as well just to straighten some stuff out. Change them if you still feel like they are not explaining things enough. Its not that they are perhaps a bad accountant...sometimes its about finding a good fit.

[Ill Be Back]

Originally Posted by chimera

The right broker makes the process so simple. You will know when you find a good one. All you do is fill in a few forms and fire lots of paperwork to them (and it will be lots).

Sounds like you could do with having another chat with your accountant as well just to straighten some stuff out. Change them if you still feel like they are not explaining things enough. Its not that they are perhaps a bad accountant...sometimes its about finding a good fit.

Yeah I hope so. Right now it seems like being self employed is great but borrowing seems to be the most difficult part compared to having a regular job. I just envy hearing about how my friends can borrow money by just providing 3 months payslips.

I will definitely call my accountant this week to have a word. You're right hes probably not a good fit. I haven't felt as if he's given enough guidance. You could probably explain things to me much better than he could lol

Anyway I really do appreciate the solid advice you've given. It means a lot.

Thanks pal

[jdbutler331]

I'm in the same boat by my partner is in full time employment and already had a mortgage when I met her. Car, house and credit cards are in her name as I only pay myself in dividends so maybe bite the bullet and just have the mortgage in her name?