Director mortgage to include net profit??

[Bloodyella]

I'm a director of a limited company and looking to get a mortgage to step up the ladder.

My accounts are set up to pay a small wage and small dividend to live on but I keep the main profits in the business (in previous years we've refurbed/expanded etc) so the limited company has a decent profit retained on the books. It's 8 years old and the net has increased each year but wages stayed the same.

I'm trying to get a mortgage agreed specifically with RBS, to include the net profit of the business rather than the small amount I draw out. Has anyone else had luck with this? The underwriters have agreed to lend based on the accounts but apparently it needs to be sent to another department to 'ok' and they're keeping us waiting a while!

Any experiences would be appreciated!

Hopeful bump!

Ime (admittedly not with RBS) it is usually salary and divends used for a director, not net profit.
RBS may well have different rules though. The issue is it’s the income that you’ll be using to pay the mortgage. How are you going to pay the mortgage with the net profit if you don’t take it out of the business?

We found The Chelsea Building Society really good with Ltd. accounts. They seemed to understand that we kept as much profit as possible in the business for future investment (and to avoid excessive tax!)

Just placemarking as we are looking to move next year with similar situation

@Eminybob the profit retained in the business is available for us to take whenever so we can take some now to pay mortgage and up deposit if needed but it's show on next years accounts that obviously we can't submit until next year, in the last few years of accounts we've not needed it so we've just kept it in the business. It seems really unfair if they won't take that into consideration as it's earned money that effectively belongs to the business owner applying for the mortgage.

We're a bit apprehensive at moving mortgage over to a new lender as we're in a fixed period and would incur a hefty charge but it's definitely something to consider so thank you!

It's such a minefield. Dh isn't confident but they should be coming back today to let us know what their exceptions team say. If the underwriters have already ok'd it on affordability, I don't understand how they could say no but it's what we're expecting.

Just a quick update if it's useful for @motortroll

The bank got back and their exceptions team said they'd write up whatever they needed, but they would only take a multiplier of the lowest net profit of my business from 3 years ago to mitigate the risk, although they're happy with our 30% deposit which swung it for us I think.

We do the application next week and hopefully get it in writing a few days later. The maximum we can borrow based on that only just covers what we need so praying they don't lower the offer!

I think business owners cannot have it both ways - DH is a business owner. Either you take the decent salary, pay the tax, and get a better mortgage offer or you dodge the income tax and have a lower mortgage offer. It’s your choice. Most people take a higher income when they need a mortgage and suck up the tax for a few years.

Great thanks for the info!

We have just this last week been talking about dh taking a higher salary and also increasing dividends as there's not a lot of value on keeping profit in the business.

I think we will be looking at only a 20% deposit (unless in laws suddenly sell up and give us some money as they've promised but unlikely!) so probably best to start planning a higher income!

We do have the bonus that I also work in a v secure profession but only part time...

Thanks for your input bubbles 

Good luck @motortroll I'd definitely recommend doing it that way, we didn't plan to move this soon so didn't prepare, thankfully this will be our last move. I tend to keep at least 6 months wages for my staff and an ongoing fund for the next expansion tied up in the business so always feel guilt at taking money out, which is laughable when I think about it as my staff have bigger mortgages than me

I don't quite understand why you have taken that tone with @BubblesBuddy

If you are keeping profit in the business to avoid tax, as is your right, then it's not your income. It is under the ownership of the legal person - the limited company. If that makes the mortgage more difficult, well... cake and eating it spring to mind.

I'm a Director too. The way that mortgage companies look at this has changed over the last x number of years. They focus on affordability now which for directors they view as dividends plus salary.

there are some lenders who are prepared to look at net profit but even then it'll be net profit after corporation tax and you'll pay a higher interest rate.

the difficulty with all of this is that you are pulled in both ways. If you're borrowing for the business they like to see very healthy retained profits. if you're borrowing for yourself then they like to see you remove the profit.

i don't think as a business owner that the tax rates are particularly onerous before you reach £100k. Accountants like to get us in the mindset that we should live like monks to avoid tax at all costs. I say just pay it like any other citizen, buy a house and be happy. business can be hard work so you deserve a decent standard of living if you can provide yourself with one.