If you're a business owner in Retford looking to secure a mortgage, leveraging your retained profits could be a game-changer. Many self-employed individuals find that traditional lenders often overlook their business earnings in favour of salary and dividends. However, with the right guidance from a knowledgeable mortgage broker at Swift Financial, you can find lenders willing to consider your retained profits, potentially increasing your borrowing capacity.
Understanding Retained Profits and Self-Employed Mortgages
Retained profits refer to the net income a business generates that is kept within the company rather than distributed as dividends. This income can be a significant asset when applying for a mortgage, especially for self-employed individuals, including business owners, freelancers, and company directors. By factoring in these profits, lenders can offer a higher mortgage amount than if they were only considering salary and dividends.
Why Choose a Specialist Mortgage Broker?
In the UK, not all lenders are equipped to handle the complexities of self-employed income. Many traditional banks focus on straightforward income streams, often leading to rejected applications for business owners. A specialist mortgage broker, like those at Swift Financial, can navigate this intricate landscape, connecting you with lenders who understand how to evaluate retained profits effectively.
How Lenders Assess Your Eligibility
Lenders typically assess your mortgage eligibility based on several key factors:
Income Verification: This includes your salary, dividends, and some will consider retained profits. Specialist lenders can calculate your mortgage potential based on the average retained profits from your business over the last two years.
Credit Score: A strong credit score can enhance your borrowing options. Lenders may use your score to determine risk levels, affecting the interest rates and mortgage amount they are willing to offer.
Deposit Size: Sometimes you need no deposit at all, but typically the minimum is 5%. A larger deposit can provide access to better rates and mortgage products.
Calculating Your Borrowing Potential
When assessing how much you can borrow, lenders often look at your net profit and apply a multiple, typically ranging from 4.5 to 5 times your retained earnings. For instance, if your business retains an average profit of £100,000 over the past two years, a lender might allow you to borrow up to £450,000.
Example Calculation:
Average Retained Profit: £100,000
Mortgage Multiple: 4.5x
Potential Mortgage Amount: £450,000
Comparison Example: Now, consider a lender that only considers salary and dividends. If this individual only took a salary of £11,000 and dividends totalling £25,000, their total income would be £36,000. A traditional lender would apply a multiple (let’s say 4.5x) to this income, allowing them to borrow only £162,000.
Special Considerations for Shared Partnerships
If you're in a partnership, retained profits can still work in your favour. Lenders will usually consider your share of the business’s profits, allowing you to apply based on your portion. For example, if you own 50% of a company with £100,000 in retained profits, your individual borrowing capacity could be substantial, depending on the lender's policies.
The Role of Swift Financial in Retford
Choosing a local mortgage broker like Swift Financial can significantly simplify your application process. Here’s how we can help:
Access to Multiple Lenders: We have relationships with a wide range of lenders, including niche and specialist ones not typically accessible to the public.
Tailored Advice: We provide personalised guidance based on your unique financial situation, ensuring you present the strongest possible application.
Streamlined Application Process: We can handle much of the paperwork, reducing the burden on you and increasing the likelihood of a successful outcome.
Understanding of Niche Products: We navigate the complexities of retained profit mortgages, connecting you with lenders who appreciate the nuances of self-employment.
Frequently Asked Questions
How Much Deposit Do You Need?
Sometimes you need no deposit at all, but typically the minimum is 5%. A larger deposit can provide access to better rates and mortgage products, making it a more attractive option for lenders.
Can Retained Profits Help You Borrow More?
Absolutely! By presenting your salary and retained profits rather than your salary and dividends, you may qualify for a significantly larger mortgage than you would with just your salary and dividends. This is particularly advantageous for business owners whose profits far exceed their drawn income.
Why Choose Swift Financial?
At Swift Financial, we specialise in helping self-employed individuals in Retford and surrounding areas navigate the mortgage landscape. We have established relationships with a huge number of lenders across the UK, enabling us to find tailored solutions for your needs. We understand the complexities of self-employment income and are dedicated to helping you secure the mortgage you deserve.
Conclusion
If you're a business owner in Retford with retained profits, don't let traditional lending criteria hold you back. By working with a specialist mortgage broker from Swift Financial, you can unlock the full potential of your business income, making your dream home a reality. Contact us today to explore your options and take the first step toward securing a mortgage based on your hard-earned business profits.
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