Mr Moratti, a limited company director had found a property that he and his family had fallen in love with, but he had been told by the estate agency mortgage advisor it was out of his price range.
He had been told by the estate agency mortgage advisor that his maximum budget was £377,500 however, the property was priced at £650,000. His budget was significantly different from his expectations.
Whilst the client’s restaurant business has consistently made a healthy profit of around £90,000 for the past three years, the client has deliberately chosen to withdraw a salary and dividends totalling around £50,000 per year from the company, this approach allowed him to optimise his personal income while minimising his tax liabilities.
The other mortgage broker had identified a mortgage lender who was willing to lend Mr Moratti £237,500, which was equivalent to 4.75 times his salary and dividend income. When combined with his £140,000 deposit, this would allow him to purchase a property for around £377,500.
The client was understandably disappointed because he felt that his business income was not being assessed based on his it’s true earnings and that he was being penalised for managing his company in a tax-efficient manner.
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Upon reviewing Mr Moratti’s company accounts, we were able to find a mortgage lender who took a more favourable approach to his company’s earnings. Instead of solely considering the withdrawn salary and dividends of £50,000, this lender utilised the company’s profits, resulting in an income of £90,000 being considered.
This had a significant impact, as it not only provided an additional £40,000 of income to use but also allowed us to unlock lenders that considered higher income multiples of 5.5 times. As a result, Mr. Moratti was now eligible to borrow £495,000, which was 5.5 times the £90,000 profit. This increased his affordability to £635,000, a substantial increase of £257,500.
Although this was still £15,000 short of the property’s original asking price of £650,000, Mr. Moratti was able to negotiate and purchase his family’s dream home for £635,000.
This case serves as a reminder of the importance of shopping around and seeking expert mortgage advice to ensure the best possible outcome for borrowers.