Mortgage for Complex Shareholding

Can company profits I haven’t taken out still be used to help me borrow more?

Absolutely, yes, depending on the lender. If they are using salary and net profit, lenders will be quite happy with that – their view is that if you don’t need to take the money out, your business is in a strong position. It doesn’t make sense to penalise you for being sensible.

Will having more than one business make it harder to get a mortgage?

Only in the sense that we’ve got more to look at and there’s more to underwrite, so more documents will be required. If somebody had two businesses and wanted to use the income from both, there wouldn’t be any problem with that.

We’d need the documents for both and see how a lender will treat those documents. We’d also have a conversation around how viable it is long-term to keep running two businesses. A lender will wonder if you’re able to run both companies full-time. It’s not difficult – there’s just a bit more involved.

What documents do I need to get ready?

It’s usually the last two years’ company accounts and the last two years’ tax calculations and tax overviews.

People often ask about business bank statements, but that’s more specific to the scenario. If there’s a fluctuation in your profits and we need to show that your business is back on track, sometimes that would be necessary. But it’s not essential unless extra questions need to be answered.

It can get quite complicated. Somebody with less than a 20% shareholding can quite often be seen as employed. In that case, we might just need three months’ payslips.

A client could have a tiny shareholding of a great big accountancy firm. Doctors are often partners in practices, and might have only just joined. We might require documents to show that the practice has been running for 10 years and so as a new partner, this is what they could earn.

We sometimes need a letter from the financial controller of a company. Or, your share in a business could backdate, which means we need to look at previous accounts.

There are also other types of limited companies, such as day-rate contractor businesses. We see those often in IT and data analysis, where a consultant is charging a day rate on a contract. We don’t necessarily need to see the accounts there – some lenders view that on an employed basis, and we just need the contract.

That’s all getting into the nitty-gritty, depending on the exact scenario. Ultimately, your advisor will always guide you on what specifically we need.

Will my personal credit history matter as much as my company accounts?

It could easily matter as much – or more. It depends on the situation. If you’ve missed 20 mortgage payments in a row, that’s not going to help. But also, if your company accounts look terrible and you’re making huge losses, that’s equally challenging.

Those are two very extreme situations. Most people would probably have a blip on one side or the other. Normally it’s something we can dig into, get over and move on. But multiple blips and complex situations could cause a problem.

There’s a rule of three. If there are three very tricky things going on, we can find that a lender will accept one thing, but not the others. If there are a couple of things to deal with, it’s usually fine. If there are three or four, I’ll need to get a cup of tea and work it out carefully.

Can I apply it based on my latest year’s income if it’s higher than before?

It depends on the lender, but some will allow that. If you’ve gone from a £20,000 profit to £200,000 profit, they will want to know why it’s gone up so much. It’s fine if there’s a good reason – if you bought lots of machinery in the low profit year, for example.

There are definitely avenues for this, but it is very circumstantial. A common question is to ask what’s happened to get you there? It might be a new and lucrative contract. If we can get a copy of that contract and it’s going to run for another three years or so, that’s perfect.

It’s ideal if we can clearly document and evidence why the income has gone up and it’s going to stay. Accountants’ projections can also help.

How long does it usually take to get approved for a mortgage with a complex shareholding?

If it’s a straightforward situation, where you own less than 20% or 25% and they’re treating you as employed, there’s no difference from normal. It’s just how long it takes to gather the documents and get the underwriting sorted.

If it’s a really complicated situation and we need financial documents from different places and accountants, we’ll rely on a client pushing those people to get those to us. But once they’re in, we would only give it another week or so for underwriting.

How can a mortgage broker help here? Any final thoughts?

A good mortgage broker will not just accept what you’ve said your income is. We will dig a lot deeper and look at how best to present your situation to lenders.

We’ll see if we could use a day-rate contract, or treat you as employed, or use salary and net profit… we’ll explore how best to structure it to achieve your goals.

A client can often have a preconceived idea of a problem. They’ve seen something online or spoken to a friend. But our knowledge and expertise could quickly resolve that and get you a mortgage offer within a week.

Whatever the problem, there’s always another lender to approach. That’s the great part of our job – you come to us for help and we’ve got an answer for you. The situation isn’t as bad as you thought.

Sometimes people have gone to other advisors previously. We won’t just accept what that advisor has said. We do the full due diligence ourselves to give you the most thorough and personalised advice.

Key Takeaways:

• A complex shareholding of more than 20% can lead to your income being assessed as self-employed, though a lower percentage shareholding might allow you to be viewed as employed.
• For self-employed individuals, lenders generally use salary plus net profit or salary plus dividends, with salary and net profit allowing for higher potential borrowing and sometimes including undistributed company profits.
• Lenders accept year-to-year changes in self-employed income and may use an average over two or three years, but significant increases or decreases require clear documentation and explanations.
• Personal credit history can be as important as – or even more important than – your company’s accounts when a lender assesses your mortgage application.
• A mortgage broker is essential for determining how to present your financial situation to lenders, exploring options like using day-rate contracts or different income calculations to achieve your borrowing goals.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

For specialist tax advice, please refer to an accountant or tax specialist.