Various business owners often re-invest in their companies for them to keep expanding. In periods of growth, they don’t always pay themselves as much as they should. This can weigh them down in obtaining a mortgage.
For these types of self employed applicants, there is self employed Mortgage Advice in Leicester available. If they feel the following case study relates to them.
Nathan was a Lorry driver who had been redundant and decided to start his own business. In the wood carving industry of all things, having spotted a potential gap in the market.
He sold the family home and moved into his in-laws with his wife and children to set up from their garage. He used the redundancy money and house sale proceeds to buy some stock and set off on his journey into self-employment.
Things went well, and within a couple of years, the business was making a small profit.
Nathan would cut wood accordingly and aggressively minimise their expenditure while his family helped promote the business to allow the company to grow more quickly.
Luckily they had no rent or mortgage to pay each month, and Nathan only paid himself a minimal salary in line with the annual tax-free allowance.
Fast forward 4 or 5 years and the business now had premises and was making almost £100,000 net profit. Still, with minimal expenditure, Nathan continued not to pay himself properly.
It was time for the family to buy a new home, but his Bank would only lend him £40,000 for a mortgage, and he approached us for assistance.
Nathan’s Bank had let him down because he was only paying himself around £10,000. Despite the profits, the business, he and his family could just about live without a dividend from his Limited company.
Unfortunately, most High Street Lenders (with the odd exception) only assess affordability based on declared earnings, this usually is salary + dividends averaged over two years, but in Nathan’s case, salary alone.
We managed to find a Lender who would assess Nathan’s profits in a completely different way. The Lender took into account his “retained profits” and did not penalize him for his self-imposed frugal lifestyle.
This Lender was not interested in the fact Nathan was not drawing out a dividend he did not need from his Limited company and agreed to lend him up to £400,000 (Nathan did not need this much as borrowed a much lower amount).
Nathan was not a self employed applicant looking to take out a self employed mortgage in Leicester. While simultaneously seeking to minimize the amount of tax he paid aggressively.
He made personal sacrifices in terms of income to grow a business from scratch.
He felt that his Bank was not interested in hearing the full story about the growth of his company and took a blinkered view of his financial situation based on income declared to the Inland Revenue.
We found him a Lender who took a much more understanding view, and Nathan and his family are now back where they belong in a family home of their own.
If you are in a similar position to Nathan or are a self-employed applicant who is looking to take out a self-employed mortgage in the future or needing self employed mortgage advice in Leicester, please make contact us.
Sometimes there needs to be much forward planning to take out a self-employed mortgage, and we are happy to help with this.
Had a client some years ago who had sold his house and moved back into the family home to start up his business.
They made lots of sacrifices personally to grow his business, and within a few years, it was starting to show good profits.
He kept his expenditure down to the bare bones and kept re-investing in his Limited company.
He had a sound business with a six-figure profit but hardly any declared income because of his self-inflicted lifestyle choice. Surely this is the kind of frugal businessman all Lenders should be considering (low LTV case too)?
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. It is little or no disposable income left.
One route out of this for some applicants is to consider a debt consolidation remortgage in Leicester. Let’s explore this within this case study.
Ian was a divorcee living on his own; his children have flown the nest. His debt had started to accumulate with legal bills after the divorce and increased gradually over the years, having to live on one income with unreliable maintenance from his ex. Finally, his daughter became pregnant quite young, and as any father would, he tried to help her out financially, although arguably, he couldn’t afford to do so.
Luckily Ian had paid his mortgage off some years ago so that asset was there to borrow against potentially. His take-home pay was £1100 per month, and his credit commitments were taking up more than half of this.
He had not missed any payments on credit commitments. But he had no emergency fund, and while Ian’s credit score wasn’t too bad, he was no longer able to obtain new zero% credit cards to transfer his balances.
He was recommended to us to see if there were any options available, to improve the quality of his financial life.
When I met Ian, he was feeling quite low. He had cut back on all luxury spending, it was evident that he was desperate to take ownership of his financial situation before it got any worse.
We explored the possibility of a personal loan, but the debts had mounted too high for that. Ian had no family members who were able to help; downsizing was not an option. We agreed the right way forward would be to remortgage the house to pay off the debts and reduce his outgoings.
We managed to find a Lender to meet Ian’s requirements, although it has to be said given his low income, it was hard to find a lender who would lend him enough. We managed to get him an Agreement in Principle, but regrettably, when we submitted the formal mortgage application, it was declined.
The reason the case got declined was that the Underwriter assessed the situation and felt that Ian had been using cards to pay off other cards and not then closing down the cards.
When he had transferred balances, there was a high risk that he should re-offend and rack up debts again.
Ian was devastated. He understood the concerns, but in his eyes, he had accepted he had a problem. By engaging us had taken a positive step to remedy his position. To him, their risk was minimal – the loan to value was under 40%. He had never missed any payments, and if the remortgage was successful, he could be a whopping £500pm better off.
All of 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. 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. It ought to be the right outcome for him.
Ian perhaps felt like he 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. Luckily this time, it was successful.
Ian didn’t take this step lightly. He has now secured debt that was previously unsecured and may end up paying back more interest overall. Depending on how quickly he can get the mortgage paid off.
However, in the short term, this has worked well for him. He now has had the burden of debt relieved from his shoulders. His credit score has improved, and he can save a little each month.
The savings we were able to help him make amounted to over 50% of his take-home pay monthly; it had changed his life. Upon completion of the remortgage, Ian cut up all his credit cards except one to use in emergencies only. Now has now got his financial life back on track.
If you are like Ian struggling with debt, but are a Homeowner with equity, please call us to discuss your options. Ideally, 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 Leicester & surrounding areas.