Partners in a LLP

Mortgages are available to Partners in a LLP

A Limited Liability Partnership (LLP) is a distinct legal structure that combines the flexibility and tax benefits of a partnership with the limited liability protection typically associated with companies. LLPs are commonly formed by professionals such as lawyers, accountants, and consultants who wish to operate as a partnership while shielding themselves from personal liability for business debts and obligations.

One of the defining features of LLPs is how partners draw earnings from the business. Unlike traditional employment or shareholder dividends, partners in an LLP typically receive a share of the profits based on the partnership agreement. These earnings, often referred to as profit shares or distributions, reflect each partner's contribution to the LLP's success and are subject to the terms outlined in the partnership agreement.

A Partner may or may not not have an equity share in the business

It's important to recognize that partners' earnings from an LLP may vary based on factors such as business performance, partnership structure, and individual contributions to the partnership's activities. While some partners may draw regular income distributions, others may reinvest profits into the business or allocate funds for future growth initiatives.

When it comes to applying for a mortgage as a partner in an LLP, lenders typically assess income based on various factors, including the partner's share of profits, additional sources of income, and financial stability. Partner income may be treated differently from traditional employment income, requiring specialized expertise to navigate the mortgage application process effectively.

At Mortgages Direct, we understand the unique financial dynamics of LLPs and the challenges partners may face when seeking mortgage financing. We are focused on providing tailored solutions that meet the specific needs and objectives of LLP partners, offering expert guidance and support every step of the way.

At Mortgages Direct, we can advise which is the best route to take for your situation. Fill in the Mortgage Enquiry  now

Minimum deposit for a Partner in a LLP

The minimum deposit for a Partner in a LLP is NO deposit!!

However, with NO deposit the deals on offer are limited to 5 year fixed rates

Furthermore you will need at least 2 full years accounts or 2 years Inland Revenue statements of income (SA302) 

A wider range of deals is available if you can raise a 5 or 10% deposit

What is the deposit for a Partner with just one years accounts or SA302?

The minimum deposit with one years accounts or Inland Revenue statement of income is 5%

What deposit should I put down

You should put down as large a deposit that you can afford, bearing in mind the following.

You should reduce or clear any credit card debt

Credit card debt that is not cleared on a monthly basis is often charged at very high interest rates. You should aim to clear this at the earliest opportunity

Credit card and loan debt will reduce the amount you are able to borrow

Lenders interest rates are typically linked to deposit bands that increase by a multiple of 5%

For example, you can expect lower mortgage rates if your deposit is 15% than if you had a deposit of 10%

But if your deposit is 12%, you will be offered the same rates as if you had a 10% deposit

Another consideration is if you put all of your savings towards a deposit - what would you do if you were to lose your income?

Your savings provide a means of paying your mortgage and bills if there is a problem with your income

How much can be borrowed by a Partner in a LLP

As a guide, Mortgage lenders may lend up to 4.5x's your income, where your income is your salary plus average share of profit figure. For a joint mortgage application it may be up to 4.5 x's the joint income.

In certain limited situations it may be possible to borrow up to 6 x's your income

This is just an indication. Some lenders may lend more in certain circumstances. Some lenders will have a lower limit. Please fill in our Mortgage Enquiry if you are hoping to maximise your borrowing

The maximum mortgage borrowing will be ascertained by assessing your income and outgoings

A number of factors are considered...

Profit Share 

Lenders may take the latest pre-tax profits as shown on your latest Inland Revenue statement of Income. The figure may be averaged together with the previous year's profits unless the most recent year is lower than the previous years profits - that is the profits are declining.

If profits are declining it is likely the most recent years profits will be used or the application may be declined!!

Lenders may be concerned if your business profits are reducing. Is this declining trend likely to continue or is there a unique reason for the down-turn.

For example, Covid19 will have affected many businesses adversely, but it is reasonable to expect that for most businesses, things would improve as the situation returns to normal

Your net profits from self employment will be clearly listed on your Tax statement of Income

There may be other items of income that may also be acceptable income

For example you may have a second income.

You may have income from land and property (buy to let property). This may be acceptable by some lenders

If the mortgage application is in joint names and your partner has an income then this can be added to your income (for the purposes of establishing your borrowing potential.

Benefit income, including child benefit may also be allowable

Next we look at your Outgoings

Personal Outgoings

Personal outgoings are the monthly outgoings that you pay each month. These may include Loan and credit commitments, Food, clothing and household expenditure. Council tax and Utility bills (Gas, Electric, Water and Telephone). Education, Commuting and Car expenses. Insurance and Pension commitments. Other Leisure and Social expense.

Your New Mortgage Payments

Your new mortgage will have a monthly payment but Lenders will not use this in their calculation. 

Mortgage lenders have to check that your mortgage is affordable in most situations so they will 'stress test' your mortgage

Typically lenders will apply a notional mortgage interest rate that is higher than the current charge rate. The idea being to check that your mortgage is affordable in most circumstances. For example, the lender may apply a rate equal to the lenders standard variable rate + 2%.

Affordability 

The affordability check is quite straightforward. Calculate your monthly net income. Sum up your monthly outgoings. Add the new mortgage payments at a suitable stressed rate and there should be a surplus left over.

Your income may be irregular which will complicate this calculation. 

Maximum borrowing for a Partner

To establish your maximum borrowing potential, contact us by filling in the Mortgage Enquiry form

Important Considerations for Partners when taking out a mortgage

Viability of your business

You are ultimately responsible for maintaining your mortgage. A Mortgage Adviser can advise based upon your previous income but can't be expected to assess the viability or future prospects of your business.

Does most of your income come from one or two sources. What would you do if for some reason these sources dry up.

It is often a good idea NOT to rely on a single source of income, unless you are confident you can replace that income

It is not possible to identify all future threats to your profits but you should consider what you would do in the event of a downturn

Income Tax

Always keep in mind that you MUST keep back money for INCOME TAX. The Inland Revenue are unlikely to be sympathetic if you have spent all the profits!! even if it is on your mortgage.

You are ultimately responsible for keeping up your mortgage payments, so they need to be at a level that is sustainable

Emergency Fund

Although this is the last item it is perhaps the most important

You need to keep back an emergency fund for periods when your income is reduced

It is recommended that you keep back a minimum of 6 months income in an accessible account. This will give you 6 months to make other arrangements.  

The old expression 'make hay when the sun shines' could be interpreted that you should save as much as you can when times are good - you may need those savings in the future