How can I secure a mortgage based on my retained profits instead of salary and dividend drawings?
As a company director, I draw a low salary and restrict dividends to a minimum to keep my taxes low. Great. But it’s restricting how much I can borrow for a mortgage. The reason being, nearly all the lenders my broker’s approached only take into account my salary and dividend drawings to work out how much I can ‘afford’ to borrow. The other problem is that I’ve only got 2 years’ accounts, whereas most lenders are insisting on 3, minimum. I’ve spoken to a number of brokers, many of whom have suggested I increase my salary and dividend drawings before I submit my application. Have you come across these scenarios before, and do you have any suggestions?
Your situation is not uncommon. Mortgages for company directors are confusing, and often multi-layered. Some lenders accept one year of accounts and a 5% deposit, whilst others insist on 3 years and a whacking 30% deposit, writes John Yerou, founder and owner of award-winning mortgage broker for company directors, selfemployedmortgages.com.
Also, like you, most company directors have a tax-efficient business model. We all know the tax benefits of taking a small salary and restricted dividends, whilst leaving profit in the company business bank account. However, this efficiency makes it difficult to persuade mortgage providers you’re a reliable borrower based on their standard lending model and criteria.
Making changes to your salary and dividend drawings shortly before you submit your mortgage application won’t help. Lenders’ criteria are based on closed business year accounts. So, any short-term changes you make won’t improve an impending mortgage application.
However, there is good news. A few lenders are willing to assess your affordability based on your net profits alone (irrespective of your salary and dividend drawings). You just need to know where to look; that’s where specialist, independent mortgage brokers like us can help.
Our team knows which lenders take retained profits into account, even if you’re choosing not to withdraw them from your company’s bank account. These lenders understand that it’s your money and that you can access it at any time you need to.
We also know which lenders are amenable to borrowers with less than three years’ accounts.
A specialist mortgage firm like us can, therefore, utilise your profit and salary to calculate your mortgage affordability. We then look at the lenders whose lending model is based on company directors’ net profits to secure you the best interest rate possible.
Many of the deals lenders offer us as a specialist are exclusive, so you often won’t get offered them if you go direct to the provider yourself. Specialists exist for exactly these scenarios.