Director Loan Used as Deposit for Large Self Employed Mortgage

Director's Loan Used as Deposit for Large Self Employed Mortgage

Area
London
Capital Raised
£1.6m

Getting a mortgage as a self-employed business owner can be notoriously more difficult.

But if you use the right mortgage broker and borrow from the suitable lenders, you could have more flexibility than you might think.

Particularly when it comes to leveraging salary and dividends, director’s loans, and even your company’s net profits as firepower for your mortgage.

The Scenario

Our client was purchasing a £1.9m home in central London at 85% loan to value. His income came from his limited company – an alcohol supplier business of which he owned 90%.

However, there were some complexities with his application that most lenders wouldn’t accept at face value:

  • His company’s average net profits over the last two years were too low to reach his large loan amount, mainly due to poor trading conditions resulting from the COVID-19 pandemic forcing pubs and clubs to close.
  • He hadn’t yet taken his deposit funds from his company and so wouldn’t be able to withdraw the funds at this point without a tax charge.
  • He needed a high loan to value mortgage with a deposit of just 15%.
  • The property ownership would be a share of the freehold, which many lenders don’t typically accept.

The Solution

We contacted a high street lender that is notoriously difficult for borrowers to approach directly.

Even brokers can be a pain to deal with, but our adviser had contacts he could liaise with directly to get an application through.

And we knew that as a mainstream lender, they’d be able to offer great mortgage greats. But they'd also accept the complexities of this case if it was handled in the right way by our broker.

The first issue to tackle was to get the most out of our client’s company earnings:

  • We collaborated with our client's accountant to establish a 3 year average of the company’s net profits, including his pre-pandemic figures.
  • It boosted our client’s qualifying income significantly, and the lender accepted the new income amount based on a more accurate projection of the company’s performance.

But the unique aspect of this case was our client’s source of deposit – the cash he intended to use was still held within his Limited Company.

  • We devised a solution to take the required deposit of £285k as a director’s loan from the client’s limited company - an interest-free loan if it’s repaid during the same financial year.
  • This meant that our client wouldn’t have to pay personal income or dividend tax on the withdrawn funds within the same financial year for the company.
  • His accountant could later change the loan to a dividend in the new tax year, meaning he wouldn’t need to pay tax on it until completing his tax return for the following tax year (a total of 2 years in the future).
  • This gave our client much more time to face the tax liability of withdrawing his deposit from his company and gave his business time to grow in the meantime.

A complicated process that needed close communication with the accountant and the mortgage lender, but one that provided immense practicality for our client's tax situation in the long run.

Finally, our broker reassured the lender about the share of freehold ownership and pushed the case through, securing the following deal:

  • A 35-year mortgage to keep the clients’ monthly payments flexible
  • A 2 year fixed rate of just 1.56%
  • With overpayments available at the clients’ discretion of up to 10%

A rate that our client was over the moon with given the complexity of his income and deposit source.

 

Louis Levine

Finance Executive CeMAP

Bristol

0117 457 7862

Are you looking for a similar type of property finance?

Get in touch today and find out how I can help.

Book Consultation

George Abouzolof

Finance Broker

Bristol

0117 403 3444

Do you need help sourcing your own property finance?

I have extensive experience securing UK mortgages for expat clients. Book a free telephone consultation with me at a time to suit you 

book a telephone appointment with one of our brokers today

Book Consultation

Bridging Team

Clifton Private Finance

Bristol

0117 959 5094

Are you in need of a similar type of property finance?

Book a free telephone consultation with one of our bridging specialists today and see how we can help you.

 Book a free telephone consultation with me at a time to suit you

Book Consultation

Sam Baker

Finance Broker

Cardiff

0117 959 5094

Are you looking for a similar type of property finance?

As a specialist bridging adviser at Clifton Private Finance, I can take a holistic view of your situation and find the right finance solution for you. Book a free telephone consultation with me at a time to suit you 

  Book a free telephone consultation with me at a time to suit you, Clifton Private Finance

Book Consultation

Fergus Allen

Finance Broker

Cardiff

0117 959 5094

Are you in a similar situation? I specialise in bridging finance at Clifton Private Finance - I will find you the best funding solution for your property transaction.

Book a free telephone consultation with me at a time to suit you

 Book a free telephone consultation with me at a time to suit you, clifton private finance

Book Consultation

Jacob Phipps

Finance Broker

Bristol

(+44) 0117 959 5094

Are you looking for a similar type of property finance?

I specialize in helping international clients source residential and investment property finance for UK property. Book a free telephone consultation with me at a time to suit you 

Free telephone consultation service, Clifton Private Finance

Book Consultation

Jack Spillane

Finance Broker

Bristol

0117 959 5094

Is your situation similar to this? I specialise in helping clients who need creative development finance solutions, and second-charge mortgages. Give me a call any time and we can set up a detailed discussion of the finance you need. customDatabaseField-8455

Mathew Phillips

Senior Finance Broker

Bristol

0117 959 5094

Are you in a similar situation? I specialise in bridging finance at Clifton Private Finance - I will find you the best funding solution for your property transaction.

Book a free telephone consultation with me at a time to suit you

 Book a free telephone consultation with me at a time to suit you, clifton private finance

Book Consultation

Alex Chambers

Senior Finance Broker

Bristol

0117 403 4324

Are you in a similar situation? I am a specialist in residential and investment property finance for UK and international clients at Clifton Private Finance. Please don't hesitate to get in touch for a no-cost discussion of the finance you need.

Book a telephone consultation at a time that suits you:

telephone consultation service, Clifton Private Finance

Book Consultation

Luther Yeates

Senior Finance Broker

Bristol

0117 244 5561

Are you looking for a similar type of property finance?

I have extensive experience finding residential and investment property finance for UK and international clients. Book a free telephone consultation with me at a time to suit you.

 Book a free telephone consultation with me at a time to suit you, clifton private finance

Book Consultation

Sam ONeill

Senior Finance Broker

Bristol

0117 959 5094

Is your situation similar?

I am a bridging finance specialist at Clifton Private Finance. I can find a quick, cost-effective solution for the funding you're looking for. Book a free telephone consultation with me at a time to suit you 

 Book a free telephone consultation with me at a time to suit you, Clifton Private Finance

Book Consultation

Robert Gibb

Senior Finance Broker

Bristol

0117 959 5094

Are you looking for mortgage or short-term finance for residential or buy-to-let property (including HMOs)? I have extensive experience in finding property finance solutions for UK and international clients, both as individuals and limited companies. Please give me a call and let me see what I can do for you.

Book Consultation

Adam Arnott

Associate Director

Bristol

0117 205 0214

Is your situation similar to this? I have extensive experience of advising clients who need creative property finance solutions. Please get in touch and we can arrange a time that suits you for a detailed discussion of your requirements. customDatabaseField-8455

Contact Us