Paul has been self-employed for five years running an online textile company and his wife Katie is employed as a head teacher. As their living costs are modest and Katie earns a good income, Paul only takes a low salary and minimal dividends from his limited company and has left the remaining profit in the business.
The business made a loss in the first year, a small profit in year two, another loss in year three, and then has made increasingly good profits in the last two years.
Paul and Katie have been struggling to find a lender to help as they are finding that many will only use the income and dividends that have been drawn from the business to assess affordability. This doesn’t provide enough income, and they need a lender who can see the bigger picture.
The Furness recognises that just because income hasn’t been drawn, it doesn’t mean that it hasn’t been generated, and that a decision to leave it in the business is often a personal one. In Paul’s case, this was being done as part of longer-term retirement and tax planning. It could however be drawn if Paul needed it to live on.
The Furness was therefore able to look at Paul’s pre-tax profits and add back his salary to this figure to provide a total income figure, and then use this total income figure to calculate a loan which was enough to enable Paul and Katie to get the mortgage they needed to move to their new home.
We were also able to provide additional flexibility because in fact an average of the last two years figures wouldn’t have provided enough borrowing capacity. By working with his accountant and obtaining management accounts for the last six months, we were able to satisfy ourselves that this was a growing business, and we could safely base all our calculations solely on the most recent year of trading.
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All our case studies are based on real cases but the names have been changed and stock images have been used to protect confidentiality.