Why do some self-employed millionaires struggle to secure a mortgage?

Whether your client is the self-made success of a global corporation or a one-person entrepreneur founder of an SME, securing a mortgage will not be without its challenges.  Why is this?  Well, it’s due to the simple fact that they are self-employed and, as such, will have the challenge of proving that they receive a regular, sufficient income.  If they’re looking to secure a traditional mortgage, it’s not about the money they have in the bank or the assets they hold in their business; it’s about being able to prove that they can service the regular repayments comfortably.

This is where the advice of a specialist broker, with expertise in arranging mortgages for those with complex incomes, is essential. Not only can such an expert secure such individuals a mortgage, but they will be able to secure the best mortgage with terms to match, taking into consideration all of your client’s income streams, outgoings, outstanding debts, liquid assets, bonuses and earning potential.  This will involve an in-depth holistic fact find, taking into account their current and future personal situation as well as their finances. The time spent doing this will certainly reap rewards when it comes to presenting the most comprehensive picture to the mortgage lender.

At largemortgageloans.com, our advisers have particular experience in arranging mortgages for wealthy self-employed individuals.  Often, these are successful business owners who have been turned away by traditional lenders as they don’t fit the standard lending criteria tick box application, even though they may be millionaires.  Our advisers, rather than thinking ‘tick box’, think ‘outside the box’, as there’s no such thing as one size fits all, especially when it comes to mortgages for the self-employed.

A good example to illustrate this is a case we worked on recently for our client, a majority shareholder of a global corporation which was impacted by the Covid pandemic.  Our client, who owns 75% of this global business, suffered massive logistical delays caused by the pandemic, with a lack of container space and longer shipping times collectively impacting the amount of working capital held by the business. Despite the company being debt free, with an overdraft facility set up but not utilised, the pandemic had caused a lot of complications to the business accounts. It, therefore, affected our client’s income and business cash flow.

Our client wanted to borrow £2.9m on a partial interest-only facility at 85% loan to value, limiting the options available. They wanted to leave as much profit in the business as they could, to ride the current storm following the pandemic, and therefore needed some flexibility from a lender. 

A relationship with a private bank was the only option and despite them declining the case initially, our adviser managed to overturn this decision by putting together a cash flow strategy for the business and agreeing for the client to make annual lump sum payments to pay down the LTV by up to 10% over 5 years.  Our client was delighted with the mortgage arranged and their new home.

Top tips for securing a mortgage for a self-employed millionaire

• Consider a private bank

For those wealthy individuals with a complicated income structure, consider approaching a private bank rather than a traditional lender.  They are more likely to think outside the box to accommodate your borrowing needs

• Hire an accountant

Ideally, applicants will need at least 2 years (sometimes 3 depending on the lender) of accounts prepared by an accountant. Some lenders will insist on accounts being prepared by a chartered or certified accountant, so it’s worth bearing this in mind

• Proof of tax payments and income declared

Make sure their self-assessment tax form (SA302) has been filed to ensure that their income has been declared and verified to HMRC along with the amount of tax they paid on it

• Deposit

Have proof of their deposit ready with the evidence to show that they can access it. The larger the deposit the better

• Bank statements

The applicant will need to be able to present between 12 and 24 months’ worth of bank statements (minimum) to the lender. This will enable the lender to determine the applicant’s average monthly income

• Credit score

It’s assumed that wealthy individuals don’t need to borrow large amounts of money or pay using credit, as the money in their bank will fund their lifestyles.  However, if the applicant is wealthy and they don’t use debt facilities, such as overdrafts and credit cards, or have regular monthly bills, such as a mobile phone contract, this will harm their credit score. Lenders rely on credit scores as proof that individuals can responsibly service debt, so checking this beforehand would be useful. There are ways in which applicants can boost their credit score, should it be on the low side

• Details of any debt repayments and additional outgoings

This can include childcare or maintenance payments, pension contributions and regular monthly bills

If the applicant doesn’t have two or three years’ worth of business accounts then don’t despair as there are certain lenders who may still be willing to offer a mortgage. This is particularly suitable if they have only just recently left full time employment and are continuing to work in the same industry or maybe the applicant is able to prove that they have a sufficient amount of work coming in.

Disclaimer: This article is for information only and does not constitute advice.

largemortgageloans.com is a trading name of Largemortgageloans.com Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). Most buy to let and commercial mortgages are not regulated by the FCA.

Largemortgageloans.com Limited is a licensed credit broker, and not a lender.

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