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Limited Liability Partnership Mortgage  

Richard Campo talks about limited liability partnership mortgages.

Can I get a mortgage if I’m self-employed through an LLP?

A lot of people don’t realise that they will be treated as self-employed when they’re part of an LLP. A typical example is where you’re made a partner in a law firm or accountancy that’s set up as an LLP. These are often professional businesses such as those of lawyers, doctors, dentists.

If you own over 25% of the shares of an LLP you’ll be treated as self-employed – we will expand on that later. However, if you’re a partner of a big ‘Magic Circle’ law firm or major accountancy practice, you might have something like a 0.1% ownership of the business.

You’re paid annually based on profit and you’ll get drawings paid through. If you’re within your first year of this, or just been put in that setup, quite a lot of banks can’t help you.

If you own the whole business then it’s the usual sort of assessment – banks look more at the company performance: profit, your drawings etc. Obviously if you’re part of a magic circle law firm, we’re obviously going to get the company accounts, but we might need a letter from the Financial Director to clarify your income.

The key thing is that you often don’t know until you come to apply for a mortgage that your situation is more complex and banks can’t help you – even as a partner of a big firm. So don’t let yourself have that bad experience. Talk to us and we can navigate you through it. It’s very simple when you know how, but it’s a nightmare if you don’t.

How many years of trade does my LLP need before I can get a mortgage? What if I’ve only been a partner for a year?

If you have made partner with a nominal shareholding, you can get a mortgage from day one. A few banks will ask for a projection from your Financial Director on your likely income for the year.

Once you have a track record for more than a year, it’s fairly straightforward. What often happens is you’re paid drawings as gross income, and are then liable for your own tax. At the end of the year you submit your tax return to HMRC and pay the relevant tax – which is obviously far less than PAYE. We can get a document called your SA302 that states this income.

If you actually own the LLP or you’re a large shareholder in that business, the minimum trading period is one year. You need a year’s accounts behind you – and the majority of the high street banks want a two-year trading history. They often average your income which is important to note, particularly coming out of this Covid period. Ironically, a lot of professions did really well through this period so that may not be such an issue.

A few banks take three years of figures – they want to see you trading for three years plus, but only take the most recent two years into account for affordability.

Performance is relevant too. If, for example, your most recent year is lower than the average, a lot of banks will just take your most recent year rather than the average. If you had an exceptionally good year, that can then bring down your borrowing capacity. But some banks will just take your most recent year.

How much you want to borrow is key. If you only need to borrow a modest sum then this probably doesn’t matter, but if you’re aiming for a big loan, the bank you choose can make a big difference.

What income for my LLP ownership is considered in a mortgage application, and what documents do I need?

We’ve talked about the drawings which is the most common way. You can be PAYE through an LLP as well.

A lot of business owners draw out a basic salary to cover their living costs. Then you can choose whether or not to take extra money at the end of the year. If you draw extra money out, it will show on your SA302.

If you’re retaining the profits – which is obviously good practice, particularly through turbulent times – perversely some banks won’t take that into account. The net profit of the business is very relevant because some banks will look at retained profit. In law firms, as well, we get things like aged debt where you know what you’re going to earn for two to three years down the line. If you’re a barrister, your affairs are even more complex and there are banks that will take your aged debt into account as well. It’s a complex area in terms of assessing income.

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What sort of deposit do I need as an LLP and how much can I borrow?

The amount you can borrow depends on your situation. If you’re a higher earner with a salary of £75,000 or more, typically you can borrow about five and a half times your income. You do need a 15% deposit or more to qualify for that.

The minimum deposit is around 5%. As a partner in a firm or business owner, you’re not disadvantaged. Some banks will offer you a mortgage with just a 5% deposit, but they are a bit more conservative on how much they’ll lend, typically offering you four and a half times your income.

So the size of your deposit and the level of your income will dictate how much you can borrow.

Are Buy to Let mortgages available to LLPs?

Absolutely. You can actually buy property through an LLP if you wanted to. If you are thinking of doing this, limited companies are the most common way of doing that. Limited company Buy to Let is a slightly different topic, but we can certainly help you with that. Listen to our Buy to Let podcast on the website for more detail.

Generally, most banks have qualifying criteria for Buy to Let: an income of £25,000 and a deposit of 25% will normally get you a Buy to Let mortgage.

Can I get an LLP mortgage with bad credit?

If you have had credit blips, it’s not the end of the world. Banks are far more understanding if you’re in a professional role.

Anything over six years ago falls off your credit file. If it’s within the past six years and has a value of more than £250 and a more serious issue such as a default or CCJ then there will be some impact.

Often people only become aware of a credit issue when they want to buy a home. You might have moved house and didn’t close off the utilities or a bill goes astray. For fairly small blips that happened more than a year ago, most high street banks will play ball. If it’s quite recent and above £250 we may have to go to more specialist lenders.

Banks have to hold a specific licence for adverse credit, which is defined as more than three credit events of £250 or more in the last six years. You can still get a mortgage. Even with fairly heavy adverse credit, rates are still only four or five percent so it’s very affordable.

How can a mortgage broker like Rose Capital help somebody if they are an LLP partner?

LLPs aren’t straightforward and it depends which box you fit into. Do talk to us as soon as possible because this is an area we know well.

We’ll know whether it’s best to get your SA302 or a letter from your FD, and whether or not we need to see accounts. Normally within a couple of days we will figure out how much you can borrow and get your Agreement in Principle – which means then you can go and find a property or get a remortgage through as smoothly as possible.

If you’re in this area you’re probably either running a business which is all encompassing or extremely successful in a very big firm. You’ve got far more important things to do in your day than worry about your mortgage. So let us worry about it for you.

A further benefit is that banks give us exclusive terms, access to specialist underwriting teams and do things for us that they wouldn’t do for you directly. I’ve mentioned a few times about an FD letter. There are banks who will accept that letter from us, but wouldn’t if you went to them directly. We’ll save you so much time – one of the most valuable commodities. 

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. There may be a fee for mortgage advice, however the precise amount will depend on your circumstances. If a fee is charged, a typical amount is £495.