Originally posted by DirtyCash
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Going down the route of using your contract, most lenders will annualise your contract rate over a 5 day week and either 46 or 48 week year.
Take Halifax for example (the biggest contractor lender), they use a 48 week year so your income for mortgage purposes would be £400 x 5 (days a week) x 48 (weeks per annum) = £96,000. The VERY maximum you would ever be able to borrow from a lender is 5 times your income but more and more lenders are reverting to a safer 4.5 times income as a maximum income multiple nowadays to stop people borrowing 5 times their income when rates are low and it appears that they can afford payments only for them to start to struggle when payments increase in a few years when Base Rate eventually returns to the 3-4% it needs to be to support a fully functioning, thriving economy.
The £96,000 Halifax will be assessing your income as will be very close to the turnover of your Limited Company unless your day rate has changed in the recent year, you took time out during the year, you work more than the 5 days a week or you have other income paid into the Limited Company.
Ignoring the contractor route, there are no lenders who will lend purely on turnover of a Limited Company. As they always state on Dragons Den, Turnover is vanity, profit is sanity so lenders will be wanting to assess the profit of the Limited Company which is interpreted differently from lender to lender.
The majority of these lenders will wish to average the figures over your last 2 or 3 years accounts:
You have lenders who will look at your share of the net profit before the deduction of corporation tax plus any salary you have taken.
You have lenders who will look at your share of the net profit after the deduction of corporation tax plus any salary you have taken.
Lenders who will look at your salary and dividend draw plus profit you have retained for the current financial year accounts (not overall profit you have built up over a number of years).
Finally you have lenders who only look at salary and dividends.
Put simply, the best way of borrowing the most is based upon a multiple of your contract rate, not your accounts as any one of the above is highly unlikely to give you a figure higher than simply annualising your contract rate.
Therefore, there isn't any chance of you getting a mortgage of £540,000 unless your day rate is higher or you have a partner who earns which you can include on the application (their income must be separate to yours - e.g. you cannot use any dividends or salary they may draw from the Ltd Co as their income if you are using contract rate annualised as your income).
When borrowing over £500,000 Halifax no longer lend 5 times income either, they will only lend 4 times income so realistically, to get a mortgage of £540,000 your day rate would need to be £525 a day so a lender who would lend 4.5 times income could assist.
The level of deposit is immaterial because if you do not earn enough to support a mortgage of £540,000, it doesn't matter if you put down £10,000 or £110,000 as the deposit, the point about you not being able to support the loan still applies.
Likewise, having 4 years accounts makes no difference either. A lender will not lend more just because you have been in business longer than others. Having 4 years accounts will mean you have access to more lenders but that is simply more lenders who would tell you they cannot lend the full £540,000 unfortunately.
Hope that helps?
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