Working from net profit rather than salary & dividends

Fox Davidson were asked to source finance for a new residential purchase. The clients had experienced difficulties with the high street banks because of the way their income was assessed.

The client was a limited company director with a 45% shareholding. He had split this shareholding with his wife for tax reasons; 28% for himself and 17% shareholding for his wife. They were drawing minimal dividends and retaining profit in the company.

The clients required borrowing of 80% loan to value against a purchase price of £805,000 and needed to move very quickly to secure their purchase. We checked their income and quickly realised that we needed to use the client’s share of net profit rather than the salary and dividend payments on their tax returns. We also needed to use both applicant’s income for affordability.

Most lenders will treat an applicant with less than 20% shareholding as employed and will not use share of net profit as a viable income source.

We sourced a highly competitive product for the clients and worked closely with the client’s accountant to ensure accounting information was provided to the lender quickly. The lender we found could accept share of net profit as income for both applicants, and due to our expertise we were able to produce a mortgage offer quickly which held the chain for the purchase together. The clients were able to exchange and complete on time and are now happily in their new home.

The lesson here is that there are many ways in which self-employed income can be assessed; salary plus dividends, share of net profit plus salary, retained profit and operating profit before tax. We can also look at fluctuating profits and projections from accountants. Our experts present income in the correct way to the right lender. This saves the client valuable time and we know how valuable time is to our self-employed clients. So whether you are looking at mortgages for self-employed with 1 year’s accounts or something more complex, we can help.