I run my own business via a limited company. It’s going well but can’t get the mortgage I need to be able to buy in London.
On the advice of my accountant I’ve only been taking around £8,000 a year in salary and then £66,000 as dividends. But I’m still finding it’s not enough to get the mortgage I need to buy a property as my advisor has said I can only use my annual drawings from the company.
The business is very healthy and has a net profit of £120,000. Can I use this to get the mortgage I need?
I’m pleased to say we get these type of enquires everyday so can certainly help!
As you’ve found by looking around already, the majority of lenders look at just salary and dividend income when assessing your borrowing capacity, and most advisors don’t understand how to read accounts properly to assess whether your business is viable and healthy or not.
In your case, most lenders would view your total annual income as £8,000 Salary + £66,000 dividend = £74,000 (providing your previous years’ figures are similar – if not, they will likely take an average of the last 2 or 3 years, which can reduce the income figure they use). Every lender is different with their income calculations and maximum loan sizes, but if they use a generous 4.5x income multiplier, that’s a maximum loan of £333,000.
If however, we look at lenders who are more accommodating of your situation it is possible to borrow based on the net profit and salary of business (your retained profits). In your case, providing you own 100% of the business this would work out as £8,000 salary + £120,000 net profit = £128,000 total income. If you own less of the business then it’s calculated based on your share of the profits.
The same 4.5x income multiple then gives us a max loan of £576,000, which as you can see is a massive increase in borrowing capacity.
We’ve written an article on using retained profits here so feel free to have a read. If you’re ready to get an application together then make an enquiry and one of the experts will get it approved for you!
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