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Low salary+div and mortgage application

client considering incorporating but worried about future mortgage application if salary 6k and rest in dividends.

I have not encountered this situation in my small client base - do you see any banks objecting? 

What would a bank say to him? Say not for a mortgage even, for a small loan or a credit card too?

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22nd Oct 2010 14:06

Shouldn't be a problem

The last mortgage application we had for a client asked what the salary and dividends were for the last three years and whether these were sustainable.

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By Monsoon
22nd Oct 2010 14:19

Should be ok

Banks are just about coping with the salary/div concept - I should hope so too, it's been happening for many years!

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22nd Oct 2010 14:21

Take deep breaths

Most of the major banks have developed a response to low salary/high dividends but still usually class it as self employed (Don't waste your time arguing with the spotty 15 year old on the end of the phone regarding this) and will generally send a form for this purpose but the other poster said, with silly unanswerable questions like "is this sustainable?" and other requests via a crystal ball.

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22nd Oct 2010 20:45

Banks

Yes, as said the banks can just about get their heads around min salary bal dividends now and many are asking about retained profit as well.  Trying to explain converting a sole trader to limited company and reduced profit through ammortisation isn't so easy!  this may not apply in your case anyway.

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22nd Oct 2010 21:07

how about credit cards and personal loans

many thanks to all, very useful answers as usual

how about personal credit card applications or loans? just crossed my mind that might be a problem if their salaried income is so low? 

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22nd Oct 2010 21:28

Lending

Generally no problem.

One thing to make very sure of is if client has critical illness cover to check with the insurers otherwise a nasty shock could be in store just when they money is most needed.

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22nd Oct 2010 21:51

insurance

checked with them and do not have any plans for such policies.

thank you all for your contributions

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23rd Oct 2010 10:12

My Experience

I was in the position of re-mortgaging and moving about 18 months after leaving full-employment for a life as a freelancer (as a one-man Limited Company).  It was all very painful at first.

As has been said - the standard call-centres for most mortgage providers just don't cope very well when you explain your low salary, dividend-based model.   I had to battle through that first tier and speak to more experienced staff before getting any sense from them ("You have a £7,000pa salary and you want WHAT??").  I had the extra problems associated with only having a single set of accounts available to send them because my business was still so new.

In the end, I had to assemble a fairly extensive information pack, enclosing my accounts, management-accounts for my second year, detailed bank statements for several years, a reassuring letter from my accountant, and a four-page covering letter going through everything in exhaustive detail - and that was all despite the fact that we'd had an unblemished payment history, and were paying a 50% deposit!

In the end, I suspect it wasn't the specifics of my accounts that reassured the bank so much as the fact that I'd put together a pretty comprehensive proposal that generally demonstrated good bookkeeping practices and a sensible business plan.

Put the effort into providing chapter and verse, make it look professional, and there are banks that will happily take freelancers.  (FYI - In our case we went with the One Account, who's products are suited rather well for freelancers with fluctuating incomes).

 

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Mortgages

I am finding that both self employed, and company directors are finding mortgages ridiculously hard to get now. The latest one is female partner employed on £50K, and her partner has two years self employed accounts at £40K. They are struggling to borrow £240K, which is 80% of the flat cost of £300K. The mortgage company are insisting on 3 years accounts, and the underwriters apparently will not budge on only having two years accounts.

So a couple with a joint income of £90K can't afford a two bedroom flat in a cheap area of London any more, even though it is cheaper than the price of renting, and so it's a very bleak outlook for self employed and company directors alike.

The banks have a lot to answer for.

 

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26th Oct 2010 07:33

mortgages

just had a word with a broker - apparently Santander are easier going. Are they going through a abroker or straight to the bank? the broker could help paint a picture for the underwriters. 

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