Client Background:
A couple was looking to purchase a larger family home. One applicant was a director of a limited company, with each holding a 25% share, giving them a combined 50% ownership. Additionally, one of the partners was employed part-time.
Objective:
- Obtain a mortgage using their share of net profit after corporation tax.
- Address challenges with lenders who only assess affordability based on directors’ annual salary and dividends.
- Use multiple streams of income to support a lending application
- Ensure seamless timing for the sale of their buy-to-let property and the purchase of the new family home.
Challenges:
Many lenders only consider a director’s salary and dividends for affordability calculations, which often results in lower loan amounts, especially when the company retains profits instead of distributing them. Additionally, coordinating the sale of their buy-to-let property while managing the purchase of a new home posed timing challenges.
Moreover, some lenders do not accept a share of profit when the borrower doesn’t hold a majority share in the company. However, we have access to lenders who are flexible and willing to use any level of shareholding for affordability assessments, even for employees with fractional shareholdings.
Solution:
Our mortgage strategy involved utilising the clients’ share of net profit after corporation tax to demonstrate sufficient income for the mortgage, providing a more accurate reflection of their financial capacity. We identified lenders who were flexible and willing to consider net profit as part of the affordability assessment. Additionally, we carefully planned the timing of the sale of the buy-to-let property to align with the purchase of the new home, ensuring a smooth transition between properties.
The clients also wanted to borrow at either 85% part interest part repayment, or 90% on a repayment basis. This increased the scrutiny of the loan but allowed them to better manage their drawings from the company.
Outcome:
We successfully secured a mortgage for the clients that met their requirements and financial situation, overcoming the limitations of affordability assessments based solely on salaries and dividends. This achievement allowed for a seamless transition from their rental property to their new family home.