Various business owners regularly re-invest in their companies for them to keep growing. In periods of growth, they don’t always pay themselves as much as they should, holding them back from getting a mortgage in Manchester. For these sorts of Self Employed applicants, there is Self Employed Mortgage Advice in Manchester available if they feel the following case study illustrates them.
Owen was an HGV driver who had been redundant and decided to start his own business in the woodwork industry, having spotted a gap in the market. He sold the family home and moved into his in-laws with his wife and children to set up from their garage.
He used the redundancy money and house sale proceeds to buy some stock and set off on his journey into self employment. Things went well, and within a couple of years, the business was making a small profit.
Owen and his family cut their materials accordingly and aggressively minimized their expenditure to allow the business to grow more quickly. Luckily they had no rent or mortgage to pay each month, and Owen only paid himself a minimal salary in line with the annual tax-free allowance.
Fast forward four years and the business now had premises and was making almost £100,000 net profit. Still, with minimal expenditure, Owen continued not to pay himself properly. It was time for the family to buy a new home, but his Bank would only lend him £40,000 for a mortgage, and he approached us for help.
Owen’s Bank had let him down because he was only paying himself around £10,000. Despite the profits, he and his family could just about live without a dividend from his Limited company in the business.
Unfortunately, most High Street Lenders (with the odd exception) only assess affordability based on declared earnings. This usually is salary + dividends averaged over two years, but the salary alone in Owen’s case.
We managed to find a Lender who would assess Owen’s profits in a completely different way. The Lender took into account his “retained profits” and did not penalize him for his self-imposed frugal lifestyle.
This Lender was not interested in the fact Owen was not drawing out a dividend he did not need from his Limited company and agreed to lend him up to £400,000 (Owen did not need this much as borrowed a much lower amount).
Owen was not a self employed applicant looking to take out a self employed mortgage in Manchester while simultaneously seeking to minimize the amount of tax he paid aggressively. He made personal sacrifices in terms of income to grow a business from scratch.
He felt that his Bank was not interested in hearing the full story about his company’s growth and took a blinkered view of his financial situation based on income declared to the Inland Revenue. We found him a Lender who took a much more understanding picture, and Owen and his family are now back where they belong in a family home of their own.
If you are in a similar position to Owen or are a self employed applicant looking to take out a self employed mortgage in the future or needing self employed mortgage advice in Manchester, please get in touch with us.
Sometimes there needs to be much forwarding planning to take out a self employed mortgage, and we are happy to help with this. Some years ago, he sold his house and moved back into the family home to start up his business. They made lots of sacrifices personally to grow their business, and within a few years, it was starting to show good profits. He kept his expenditure down to the bare bones and kept re-investing in his Limited company.
He had a sound business with a six-figure profit but hardly any declared income because of his self-inflicted lifestyle choice. Indeed this is the kind of frugal businessman all Lenders should be considering (low LTV case too)?
At some point in their lives, many people will encounter some form of debt, whether that be a large amount or a small amount. Sometimes due to personal circumstances, this can spiral way out of control. When this happens, it can feel that once you have paid all your bills at the start of the month, you have very little disposable income left for yourself, if any at all.
A possible solution for customers, a way out if you will, is a debt consolidation Remortgage in Manchester, as we explore here in this case study.
Claire was a divorcee living on her own after her children had moved out to start their own lives. Post-divorce, her debt had started to accumulate with legal bills and increased gradually over the years, having to live on one income with unreliable maintenance from her ex. One day her daughter discovered she was pregnant, but as she was still young she too was struggling a little. As any loving parent would, Claire tried her best to financially support her daughter, despite not really affording to do so.
Luckily Claire had paid her mortgage off a number of years ago so that asset was there to potentially borrow against. Her take-home pay was £1100 per month, and her credit commitments were taking up a vast majority of this amount.
She had not missed any payments on credit commitments, but she also had no emergency fund saved. Whilst Claire’s credit score wasn’t too bad, she was no longer able to obtain new zero% credit cards to transfer her balances. She was recommended to me to see if there were any options available out there to improve the quality of her financial life.
When I met Claire, she was feeling quite down, like she was at a real low point. She had cut back on all luxury spending, and it was evident that she was desperate to take ownership of her financial situation before it got too out of control and she ended up in a much worse position.
We took a look at the possibility of a personal loan, but the debts had mounted too high for that. Claire had no family members who were able to help and realistically, downsizing was not an option. After much discussion, we agreed the right way forward would be to remortgage the house to pay off the debts and reduce her monthly outgoings.
We managed to find a Mortgage Lender to meet Claire’s requirements, though due to her low income, finding a lender who would lend enough was a rather difficult task. We managed to get her an Agreement in Principle, but regrettably, when we submitted the formal mortgage application, the Lender declined it.
The reason the case was declined, was that the Underwriter who assessed the situation felt that because Claire had been using cards to pay off other cards and then not closing down her old card accounts. When she had transferred balances, there was a high risk that she could re-offend and rack up debts once again.
Claire was noticeably devastated. She understood the concerns, but in her eyes, she had accepted she had a problem, and by engaging us had taken a positive step to getting her life back on track. She felt their risk was minimal – the loan to value was under 40%, she had never missed any payments, and if the remortgage was successful, she could be £500pm better off, which is a significant difference.
Whilst the above may very well be correct, customers may not always appreciate that the possibility of taking a property into possession is the last thing a Lender wants or needs to do. It reflects poorly on the numbers they are required to report each year. In the unfortunate event of repossession, they have the considerable hassle of securing the property, ensuring it, marketing it, selling it, and paying the surplus of equity (if any) back to the previous owner, which in this case would be Claire.
As such, if there is reasonable doubt, then an Underwriter has the discretion to decline an application, even if it is within their own published lending criteria.
Our dedicated and experienced Mortgage Advisors in Manchester pride ourselves on getting our recommendation right the first time, but this one didn’t work out that way due to the Underwriter’s adverse comments at the full application stage. However, we knew this remortgage wasn’t as risky as the Lender had made out, and it ought to be the appropriate outcome for her.
Claire perhaps felt like she wanted to give up, but we went back to the drawing board to find a different Lender that would accept her. Sure enough, we found one. Armed with the information we had from the previous Lender, we were able to provide better supporting comments for this hopeful second chance. Luckily this time, it was successful!
Claire didn’t just throw herself into this. She has now secured debt that was previously unsecured and may end up paying back more interest overall, depending on how quickly she can get the mortgage paid off over the course of her term.
However, in the short term, this has worked a treat for her. She now has had the burden of debt relieved from her shoulders, her credit score has improved, and she can save some more money each month.
The savings we were able to help her make amounted to over 50% of her net take-home pay monthly and it has changed her life. Upon completion of the remortgage, Claire cut up all her credit cards except one to use in emergencies only, and she has now got her financial life back on track.
If you are like Claire struggling with debt but are a Homeowner with equity please contact us to discuss your options, ideally before the situation gets out of hand. The earlier you take back control of your finances the better you will feel about things. Our Mortgage Broker in Manchester can offer debt consolidation Remortgage Advice in Manchester & surrounding areas.
Many people like the idea of creating a property portfolio to fund their retirement.
Not everybody is a fan of pension plans, but they do understand the property, I know that over the past 20 or 30 years it has been a sound long term investment despite the peaks and troughs.
In this case study, we look at one way we helped a client take her first step on the road to being a Landlord and started her journey for a Buy to Let Mortgage in Manchester.
Robin is a self-employed mum of two, who is a Director of two small businesses in Manchester. She and her partner had a substantial amount of equity in their home and were interested in raising some capital to buy a low value buy to let property, possibly at auction.
Robin felt she could get some bargains at auctions, but she never had enough money to attend and be a cash buyer.
She had looked into Remortgaging her house in Manchester for this purpose before but had been told it wasn’t possible unless they could provide an address for the onward property they wanted to purchase – the proverbial “chicken and egg” scenario.
Robin also mentioned that once or twice a year, she received a dividend in the region of £3000 from one of the companies she was a sleeping partner in, and she has been prone to wasting some of that cash when it arrived, perhaps unexpectedly.
I could tell that Robin was a very busy person but also an astute businesswoman. The dividends she received could be put to better use as she never had it earmarked for anything specific.
I recommended an offset Remortgage in Manchester for Robin and her partner secured on their home.
I found a Lender who was happy to release funds on completion to be assigned to a future buy to let purchase without insisting on a specific property.
Robin simply deposited the additional funds into the offset savings account that comes as part of the mortgage, and these monies simply sit there until she needs them.
The offset savings accounts do not attract interest but instead is offset against the mortgage balance.
To clarify, Robin had £85,000 surplus funds from a total remortgage of £215,000. While the money is in the savings account, Robin only pays mortgage interest on the £130,000 difference between the two figures.
The £85,000 is on instant access and was available whenever she needed it
Three months after completion, Robin identified a suitable property that was in a state of disrepair. It was probably not mortgageable itself, but of course, Robin had access to liquid funds to buy the house outright.
Robin secured the property at a knock-down price of £55,000, but this amount needed to rise to a total of £70,000 to fund legal costs and a refurbishment program of works.
A further nine months went by, and with the works all done, Robin had no trouble finding a tenant. The house was now worth £90,000, and we raised a remortgage of £67,500 against it to fund the purchase of property number two.
Robin has no intention of becoming a full-time Landlord, but she can now see a way forward to owning three or maybe even four properties in the future to fund her planned retirement lifestyle.
She loves the flexibility that her offset mortgage brings, and while she still ‘squander’ some of her dividend, which is her right to do. Without fail, half of it at least is deposited back into her offset savings account, her money working “for her” to reduce the total amount of interest repayable.
If you are interested in offset mortgages or building your investment property portfolio, please get in touch, and our Mortgage Advisors in Manchester will be happy to assist you.