Self- employed mortgage woes

[wigglybeezer]

Arghh, had offer accepted, private sale of flat below ours ( we wanted to convert back into one large house). We didn't have a mortgage agreed in principal before we put in the offer because we had to move fast and it takes time to prepare accounts etc. went back to our financial advisor, he got our previous mortgage when DH was a sole trader and we naively thought similar terms would apply this time, ie. 3x average profits of last three years.
We were wrong, as we now have a limited company and leave some of our profits in the company (we like to have emergency money where we can't fritter it away and keep our tax bill down ) we can't get anything like enough to buy the flat or upgrade to a house with another bedroom.

We never go overdrawn, own a small commercial property outright as well as our mortgage free flat and DH has never been busier but we can't move, at least not for two or three years ( and that's only if prices stay stable)
I know I should be happy with our lot, and in some ways it will be nice to carry on without debt but we moved to this flat with one small baby and now have two teens and a big 10 year old.

Oh well, time to improve the storage and declutter, again.

I am also self employed and have a ltd company so I know what you are facing. Are there any creative options...
Could you arrange a mortgage secured against the other properties you own instead of the new property that you want to buy?

Also have a free chat to another mortgage broker.
If not - yes focus on the +. Less debt!

Even remortgaging our flat is dependent on our small salary and dividend income, rather than more generous profit figures. I think we are going to take out more dividends and save up, ironically if we had done this before and spent it on fun stuff we would be able to get a bigger mortgage. We only actually need twice our annual profits. We are going to have one last go with a more specialist broker but rates tend to be much higher.

I suspect there are quite a few people in this situation, we would have been OK if DH had stayed a sole trader but in his industry big companies will sometimes only sign contracts with Ltd companies so he had to change.

If you have a good relationship with your bank they can often extend their offers as they understand small business and profits

Tried that Beach, spoke to our local area mortgage business manager, the computer still says no!

Banks are being an UTTER pita regarding mortgages for small business owners
three years of submitted returns - and its not a form we accountants can download

not quite sure what you mean about leaving money in the business to keep your tax bills down - are you both taking right up to your basic rate limit in dividends and wages?

I'll send you a private message x

Talkin peace, no we just took out what we needed and as we didn't Have a mortgage and are good at being thrifty we kept our spending down to below that. We did used to take more out a few years ago. I feel our accountants should have warned us of the possible implications of doing this. It is east to miss things when you are very busy trying to build a company in a recession and have three school age kids ! I also inherited some money from a relative and we used that for a few big expenses like fixing the roof and adding to our deposit fund. Thanks crown jewel..

Not all lenders assess in the same way. Some will look at your income, eg salary and dividends, some your profits, and some will lend based on the value and length of your current contract. I've just got a mortgage agreed in principle despite a large 2 year gap in my profits from when I was on maternity leave. Perhaps try another broker?

Plenty of lenders look at the retained profit rather than the salary and dividends. I actually think your main problem would be your intention to convert two properties into one- no lender I know of would release any funds at all until the conversion were complete and the titles merged.

We obviously have a lazy broker who hasn't tried everywhere yet.

We went against our usual risk averse ways here and took a chance As time was tight, big mistake, we will have t withdraw our offer soon and will probably have to pay the vendors legal costs as its a small town and we have to stay on good terms.

We thought the conversion would be okay with the lenders because it would not involve irrevocable changes to the fabric ( well apart from a hole cut in a floor for a stair to go through) and as we already own half the building outright and would have a large deposit on the other half the LTV would be high. Our solicitor has done the conveyancing on several similar properties recently, there's a bit of gentrification going on.

I have obviously not been thinking like a mortgage lender, we focused our researches on market values, affordability and planning issues but didn't do enough research on lenders.

I have just worked out that I misunderstood about the tax issues, leaving the profits in doesn't avoid tax, you just end up paying corporation tax instead of income tax, I am certainly learning a lot from this debacle.

DH has just admitted that this whole issue would never have arisen if he had got around to setting up some standing orders to transfer salary and dividends automatically. Ironically he has been extremely busy for the last six months, earning more than he ever has before but this has meant he never seems to have time to sit me down and train me to be in charge of the accounts. Live and learn, we still have a perfectly good ( and cheap)roof over our heads, flats are selling really slowly here so we may even have another chance to buy it in six months if no one lose wants it ( it is a bit grotty).

One of the things I learnt very early on as a small business owner is you can't do anything financial on a whim. One of the best things I ever started doing was sitting down regularly with my IFA to look at my long term goals and how to structure my finances to achieve this. We create a short term (15months), medium term (5year) and long term (10+years) plan and look at how to achieve these goals.

see DH and I cheat on that side with our (utterly separate) businesses

• I'm an accountant

All good advice - definitely try and find somebody who will look at a company's retained profits. I am an accountant and have a client very similar to you - was only taking minimal amount out of limited company and not declaring any dividends. They had a massive pot of money sat in business bank account, plus corresponding large retained profits sat on balance sheet. I wrote a letter to their IFA on headed paper explaining situation, and EVENTUALLY were given mortgage, although it was a bit of a struggle. Its worth shopping around abit, and finding a decent IFA who understands the situation (my clients initial IFA was completely rubbish and didn't understand retained profits, even though he could see them effectively sat in business bank account!)
Good luck!

Have you tried London and Country? They were amazeballs for us and although we did have to agree to a retention until the work was done, they negotiated it down from 40% to 20% for us.

You're right Lonecat, we knew there was a strong chance the flat would come onto the market anytime in the last five years as the owner was in his nineties, but we thought saving up would be enough, if we had asked our accountant for advice we could have anticipated the problem, but we use the same accountants as my ILs building firm ( gave us a good rate as a favour) and they specialise in companies with much bigger turnovers than us, we are now planning to move to a more " bespoke" firm

We are going to contact a few brokers directly this week before we withdraw our offer, thanks for the recommendations.

why dint you take a mortgage out on the commercial property?

Dh is self employed and a ltd company and we got our recent mortgage based on a contractor mortgage with the Halifax, through contractor money brokers - who were excellent. Is this an option for you? If your other half has contracts (it sounded like he does) that might work?

Other than that, definitely try another broker as they do seem to have special knowledge about lenders and some sway wrt their clients.
Good luck :)

My Dh also has a limited company, we are convinced that we used London and Country last year and definitely have used them previously.

They are whole of the market, and cover all sorts of mortgages. Admittedly our mortgage rate is a tad higher but nothing that significant that we cried or anything

They are free and possibly still recommended by MoneySavingExpert.

Misty not employment contracts, we work in the creative industries so they not employment contracts as such.

Herhonesty, it's a teeny tiny former shop value £ 35K max!

I keep coming up with mad solutions, my latest is to ask the vendors if we can buy it in instalments! ( not serious).

Thanks everyone who gave advice, we have been rescued by the bank of mum and dad.