BUSINESS OWNERS: MORTGAGE PREPERATION

Mortgage for business owners is all about preperation. You need to be thinking about mortgage applications and buying properties well in advance. As a business owner you may be structured in a number of ways. However the fundemental strategy of being organised and prepeared applies to any set up. Lets have a closer look.

SA302

An SA302 document is required as this documents shows the mortgage lender that you have submitted a tax return and highlights the calculation and workings out. It is important to the mortgage lender that your tax documents reflects your business trading.

Required for:

  • Sole traders
  • Limited Company Owners
  • Contractors

Book Keeping

Book keeping plays a vital part in the preperation of your business. The better you can organise your invoices and expense documents, the more prepared you will be for both business life and your mortgage application.

If you are organising your own book keeping, then keep a folder, with month to month dividers, seperating income and expenses documents. You will be better off in the long run, as it will be much easier and quicker to submit yoru annual accounts on the back of organised book keeping.

This will help you inr egards to any mortgage applications as without organised book keeping, you may have long delays trying to piece all of the documents together when the time comes.

Required for:

  • Sole traders
  • Limited Company Owners

Bank statements

A Mortgage lender may request business bank statement from the last 3, 6 and sometimes 12 months, dependant on your circumstances and application.

This means it is vital to ensure you have tidy bank statements. What we mean by that is:

  • Pay yourself at the same points each week / month
  • Do not mix personal and business expenses by purchasing personal items with your business account
  • Do not go overdrawn
  • Dont purchase unusual items with your business account

The mortgage lender is looking for nice flowing bank statements with no compliacations. Keep it simple. Keep it clean.

Business Profits

This may seem an obvious statement, however you would be suprised how many business owners we come accross who believe you borrowing are based on what you pay yourself as a business owner. This is not true!

No matter how you structure your business, the lender is going to be interested in one area. Profit!

If you are interested in purchasing your first home or obtaining a mortgage as a business owner, then you are going to need to have made a profit within your business.

Retained profits can be considered by some lenders, a sole trader will have a net profit showing on a tax return and if you are a Limited Company Owner, then a profit needs to be present in order to pay yourself a salary and dividend.

Limited Company Vs Sole Trader

Limited Company

Firstly let us start with confirming the following Myth. As a Limited Company Owner you cannot obtain a Mortgage by paying yourself a salary on PAYE for three months. The lender will still view a Limited Company Owner (25%+ shareholder) as self employed.

An employed structure is simply a business set up for tax effeciency and should not be treated as an employed position for a mortgage application.

A Limited Company Owner will need the following prior to a mortgage application:

  • SA302 document
  • Tax Year Overview
  • SA100
  • Signed accounts by a qualified accountant

As a Limited Company Business Owner you will pay yourself a salay plus a dividend. A mortgage lender will take either your salary plus dividend or salary plus net profit as a calcultion to determine your borrowing capacity.

We recommend that your accountant set’s up your accounts to show your net profit and your salary as this set up can lead to a higher borrowing potential.

Sole Trader

As a sole trader, the set up and submission of accounts is more simple than a limited company. The one item of interest to the mortgage lender will be your net profit.

As a sole trader the documents you need to have after every years of trading is:

  • SA302
  • Tax Year Overview
  • SA100