Setting up a limited company
As a contractor you may have taken the decision to set up your own limited company or be planning to do so, in order to manage your personal income. This model provides a range of tax efficiencies which make it the preferred choice for many; as it means that a qualified accountant can take care of your income and tax, so that you don’t need to spend the time completing frustratingly complex tax returns.
However, for most contractors the frustration can arise when attempting to secure funding. UK mortgage lenders maintain a consistent process when checking income for self-employed individuals. And for an applicant using a LTD company to manage income, the vast majority will only accept the salary and dividend drawings from the latest two to three years of trading history, for the purpose of securing mortgage funding.
For many contractors this can come as a surprise, as generally speaking, the company is being used to handle the regular income received from yourself as the sole employee and director of the company. As such, the turnover of the business reflects the income you personally secure on a yearly basis and any funds left in the business are yours to take at any given time.
Even more frustrating is that a contractor just embarking on their new career path will have, at worst no accounts and at most, under the minimum two years that UK lenders require for a mortgage application.
So where does that leave you when attempting to secure a mortgage?
The good news is there is another approach available that will allow you to utilise all of your income to help with your application.
At CMME we have built longstanding relationships with many UK lenders, which has allowed us to create our own innovative process towards securing mortgage funding for contractors. Using this bespoke process means that we can not only help you to raise the borrowing you require for a mortgage, but it also provides you with access to high street lenders, and therefore gives you the range of lower level interest rates that would normally be unavailable.
How are we different?
The process we utilise is two-fold; the first step is to provide sufficient income evidence for a lender in order to confirm that your affordability range is higher than the salary and dividend income would initially suggest is the case. Rather than treading the usual path of supplying your LTD company trading accounts, we have agreed with lenders that we can supply a current contract in order to provide income evidence.
The method used to determine your personal income varies from lender to lender, but in essence we will agree with an underwriter a level of income that is deemed to be acceptable for you, by annualising either your hourly or daily rate of pay. By doing this, we are able to provide you with the means to use a majority of the income that you are paying into your company, to demonstrate to the lender that affordability should not be a concern.