Are dividends acceptable as earnings to mortgage lenders?

by Readers Question

10:48 AM, 11th May 2015
About 4 years ago

Are dividends acceptable as earnings to mortgage lenders?

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Are dividends acceptable as earnings to mortgage lenders?

Hi All

Quickly about me – I’m very much a novice. I have two properties, one a BTL in Warwickshire and the other a holiday let in Norfolk. Both are doing OK. I want to start ramping up my portfolio and am in a position to re mortgage the Warks property and release approx £60K. I can do this in October when the current mortgage deal expires. Are dividends acceptable as earnings to mortgage lenders

My question relates to salary and from my understanding I need to prove a minimum £25K. At the moment I take a combination of salary and dividends each month and this equates to £28K but is obviously very tax efficient. The question is – will this be acceptable to a mortgage lender or does it have to be a fully taxed ‘proper’ PAYE income of £25K? If the latter then I assume I’ll need to get on with altering things now so that there’s a few months proof of earnings?

Any advice or experiences very much appreciated!

David



Comments

Mark Alexander

10:51 AM, 11th May 2015
About 4 years ago

Hi David

In a word, YES, dividends are an acceptable source of income for some mortgage lenders. There are also BTL lenders who are happy to ignore income completely for established landlords and that criteria is nowhere near as difficult to meet as you might imagine. From what you have said I think you could probably tick all the boxes 🙂

Please take a look at the article linked below, which was written by one of our recommended brokers.

Link >>> http://www.property118.com/buy-let-minimum-income/66666/
.

John Constant

12:15 PM, 11th May 2015
About 4 years ago

Reply to the comment left by "Mark Alexander" at "11/05/2015 - 10:51":

As a general guide to David and others, Mark is correct in that many lenders accept dividends as income. However, some do not, but will look at the net profit of a company instead of the salary and dividends. As Mark said, the financial criteria is not that onerous as far as income is concerned; there are other lenders who do not have the £25,000 rule. If in doubt please feel free to contact me (as someone with a business link to Property 118) via my profile to check out the options to expand your portfolio.

Steve From Leicester

12:21 PM, 11th May 2015
About 4 years ago

My girlfriend and I have taken out recent BTL mortgages with Birmingham Midshires and Coventry BS. Both lenders accepted dividend income where salary requirements were concerned.

I had an issue with the BM mortgage at first because some of the deposit was coming from my company's Director's Loan account. They saw the word "loan" and rejected it, saying that "borrowing money for the deposit" wasn't acceptable. The person I was dealing with couldn't grasp that I wasn't borrowing money, I was being repaid money I'd previously lent to my company.

Rather than try to find somebody who actually understood I simply re-labelled it a "special dividend" and they went away happy.

Pete Lindley

12:41 PM, 11th May 2015
About 4 years ago

Similar to the following:
- Mortgage company says you've not got enough income
- You have £1500 net profit from rents pcm
- Mortgage company says they are unable to accept £1500 net from rent as an income
- Your accountant creates a property management company, which receives money from you as an individual (from your net rent profits); The company produces payslips to your other half for £500 pcm for secretarial and managerial work for the company.
- You now have £500 pcm income and that is acceptable.

(It sounds feasible in my mind - no idea on the legalities though as I'm not trained in such matters). But the theory is there!

Bizarre world!

David Sewell

17:39 PM, 12th May 2015
About 4 years ago

Many thanks for the considered responses to this, I now have a far clearer idea of what I can do and mercifully I can still pay myself in a tax-efficient manner!

Have to say this is a wonderful forum and I will make a donation as a way of saying thanks.

LVW4

12:28 PM, 13th May 2015
About 4 years ago

I had a small problem last year when I wanted to re-mortgage a high figure, and like you, my income is salary/dividends/rental. The 'usual suspects' were not interested, but my broker introduced The Holmesdale BS, who are small and may not have the broadest range of products and lowest rates, but do take a traditional underwriting approach based on ability to service the mortgage.

Stuart

11:20 AM, 17th May 2015
About 4 years ago

Hi David

You mentioned....

"I take a combination of salary and dividends each month and this equates to £28K but is obviously very tax efficient."

Care to share some more details on your strategy to help smaller investors become more tax efficient ?

David Sewell

21:22 PM, 17th May 2015
About 4 years ago

Hi Stuart,

With a limited company you can withdraw dividends that attract corporation tax at 20% but no NI. So many LC directors pay themselves small salary and top it up with dividends. Of course that does mean that you need to post a profit because you cant pay a dividend out of a loss.

Tax cafe have an excellent publication that goes into it very thoroughly.

Stuart

9:34 AM, 18th May 2015
About 4 years ago

Thanks for the advice.

Going to check out the resource you mentioned.


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