Reply to: Shared ownership: how is the household income calculated for a contractor?

[Mark McBurney@CMME]

Hi Mark,

Quick question, what about let's say *interests* that you receive from savings? Are they considered as well on top of the salary and dividends?

Hi Mickael,

Not considered as income unfortunately by any lender I can think of, but the bigger issue would be that (I believe) that authority for Help to Buy is means tested and this could therefore preclude you from the scheme?

[northernladuk]

Hi Mark,

Quick question, what about let's say *interests* that you receive from savings? Are they considered as well on top of the salary and dividends?

How much interest do you get from savings? Can't imagine it's enough to make much of a difference.
Why are you doing shared ownership if you have savings?

[mickael28]

Essentially though, it's the same as the mortgage funding, in that your income is only seen as taxable income, so through a limited company it'll be salary plus dividends.

Hi Mark,

Quick question, what about let's say *interests* that you receive from savings? Are they considered as well on top of the salary and dividends?

[mickael28]

Thank you for the input guys, and thanks for the explanation Mark.

Not so sure about these schemes TBH, but always good to know how they work just in case at some point something makes sense...

Thanks!

[northernladuk]

Thanks for the edit mark.

[Mark McBurney@CMME]

I went to see a shared ownership scheme recently, he told me that the contractor dividends model doesn't work, but that I could in theory get a job in a supermarket for a month, buy a house on that 'salary', then quit and continue paying using my contractor income.

Whoever it was that you spoke to is a little misinformed, sadly, although it's a possibility. It doesn't have to be any more difficult for a LtdCo contractor than for a permie. Most lenders have some sort of minimum timescale that you have to be in employment for, and as such you could quite possibly struggle to obtain mortgage funding - especially given you'd be able to borrow probably £100k tops.

As far as Help to Buy in concerned (H2B is the umbrella scheme under which the various forms of help are covered, such as shared ownership, shared equity, equity loan or mortgage guarantee), there is a separate application process to gain 'Authority to Proceed' from Home Buy (the administer of the government funded part), and as such some brokers struggle to understand how they view this.

Essentially though, it's the same as the mortgage funding, in that your income is only seen as taxable income, so through a limited company it'll be salary plus dividends. There are a few minor differences but that's the income model they will base things on. The mortgage is dealt with separately, and can then be based potentially on day rate, although there is sometimes a slight curveball if the two different parts of the application have been assessed on different incomes, but it's not impossible. As NLUK points out, there are quite a few LtdCo contractors who 'earn too much' if they have their wife/husband on the company, so it may not be accessible, but it's possible.

We've seen a good amount of interest in all forms of Help to Buy from contractors, particularly those who may not have been contracting for a massively long time and therefore maybe haven't had time to save up the required deposit. There was also the Help to Buy ISA announced in the budget last week, whereby if you're buying up to £250k outside London you can obtain an additional £3,000 of government funding towards your deposit, which may also be something of use.

[mickael28]

I went to see a shared ownership scheme recently, he told me that the contractor dividends model doesn't work, but that I could in theory get a job in a supermarket for a month, buy a house on that 'salary', then quit and continue paying using my contractor income.

Who is 'he' in this case? ie, a developer, estate agent, solicitor, someone working for the housing association?

And were they talking about getting a mortgage in your situation or about the eligibility criteria for these schemes?

[PerfectStorm]

Who's sockie are you?

Good grief, you are sockie paranoid. What would I have to gain from making this story up?

[northernladuk]

Who's sockie are you?

[PerfectStorm]

I can't believe that for one minute.

Why? Once the contract's signed and you're making payments I doubt they care if your criteria's changed.

[northernladuk]

I went to see a shared ownership scheme recently, he told me that the contractor dividends model doesn't work, but that I could in theory get a job in a supermarket for a month, buy a house on that 'salary', then quit and continue paying using my contractor income.

I can't believe that for one minute.

[PerfectStorm]

I went to see a shared ownership scheme recently, he told me that the contractor dividends model doesn't work, but that I could in theory get a job in a supermarket for a month, buy a house on that 'salary', then quit and continue paying using my contractor income.

[SueEllen]

Bypass saving for a deposit?

I've met a couple of people who had done shared ownership.

Their mortgage plus rent adds up to more than just mortgage payments.

Added on to the fact rent payments can increase yearly but you can fix a mortgage rate for a few years.

[eek]

Why are contractors even considering this anyway??

Bypass saving for a deposit?

[northernladuk]

Found a site that says..

Your gross salary is used to assess your eligibility. This means before any deductions such as tax, pension, salary sacrifices, student loans etc. If you get any bonuses, overtime or commission, 50% of it will be considered. Second jobs and other forms of income are also included. Student loans and bursaries are not an acceptable form of income and will not be considered by housing providers.

So they will take in to account your wage, and your dividends under the 'other forms of income'. I would have thought just yourself bringing in the minimum threshold amount is going to push you very close to the 60K (as this is gross). You say 'we' so guess there are two of you so I can't see for one minute how you are going to be under this criteria.

Why are contractors even considering this anyway??