Getting a mortgage as a company director should be no issue at all. It’s our mortgage advisor’s experience that issues arise when the wrong mortgage lender is chosen for your pay structure.
Can you get a mortgage as a limited company director?
Yes, you can get a mortgage as a limited company director. However as is the case for many people who are self-employed and applying for a mortgage, the process can be a little complicated for company directors.
In this guide, we will tell you all you need to know about getting a mortgage when you have a limited company.
If you would like to know more about mortgages for company directors after reading this post, get in touch with our team and we will give you our experienced mortgage advice and support.
Why is the mortgage process complicated for limited company directors?
As a mortgage broker with 4 decades of arranging mortgages for company directors, we are aware that it can seem complicated. There is no getting away from the fact that company director mortgages can be complicated however they just need an experienced expert mortgage adviser involved throughout the process.
Mortgage lenders need to know that you’ll be able to make the repayments on your mortgage. As such, they will carry out an affordability assessment when you make your application. This is the case with every mortgage applicant but as some company directors receive advice from their tax advisors about reducing their tax liability. This advice can be such situations as taking their salary up to the tax-free threshold and then using tax-free dividends to make up the rest of their income. This is a very normal situation for a company director, however, some lenders will refuse applications due to the complexity of the applicant’s income.
This is just one of the reasons why the mortgage process is complicated for company directors.
Another reason is the stability of earnings. Some lenders are cautious about lending to company directors because they don’t know how successful their businesses will be. They are even more cautious when the director has only been trading for a short amount of time.
Do these factors mean your mortgage application will be rejected?
Not necessarily but you do need to prove that you’re a good applicant. You might also need to turn to a specialist lender rather than a mainstream lender as they will be more flexible and more understanding of your situation than the mainstream lenders who are unwilling or unable to understand how you make your income.
The mortgage process can be simplified with the help of experienced mortgage brokers, so if you’re a limited company director and need mortgage advice and support, get in touch with our expert team.
How will a mortgage lender assess my income?
Most lenders will only consider the income you have drawn from your business (salary and dividends) rather than your overall profits. As such, not everything your company has made will be looked at when assessing your mortgage affordability.
So, if your company has made a £200,000 profit but you have only paid yourself £50,000, most high street lenders will only assess your affordability based on the £50,000.
This will affect how much you will be allowed to borrow as you will likely be ruled out of larger mortgages if not all of your company’s profits have been taken into account.
Thankfully, this isn’t always the case as some specialist lenders will take your net profit into account when assessing your affordability. So, rather than looking at your salary and dividends alone, they will consider all of your company profits and as such, may increase your borrowing amount.
How long do I need to have been trading for?
Some mortgage lenders will only consider your mortgage application if you have been trading for 3 years or more. However, it is still possible to obtain a mortgage if you have less than 3 years of trading although you might need to turn to a specialist mortgage lender in some cases.
Can I get a mortgage with less than a year’s trading history?
If you have recently gone self-employed and don’t have a full year’s set of trading accounts to prove a stable income, you will find it more difficult to obtain a mortgage than somebody who has been trading for longer.
This doesn’t mean you will be ruled out of all mortgage deals, however. If you have contracts in place that guarantee your future income, you may still be granted mortgage approval provided you meet the rest of the lending criteria.
Unfortunately, some high street lenders might still turn you away but there are specialist lenders who will consider your application. To access these, you will need to use the services of a specialist mortgage broker, such as ourselves. Get in touch with us if you are interested in applying for a mortgage with less than a year of trading history.
How can I prove my income when getting a mortgage with a limited company?
Lender requirements can differ but generally speaking, you will be asked to provide the following when making your application for a mortgage.
- 1-3 years’ worth of accounts that have been certified by an accountant
- Both business and personal bank statements
- An SA302 tax calculation form (the year-end tax calculation from the HMRC which shows your declared earnings as well as a breakdown of how your income tax and National Insurance contributions have been calculated)
If your company is doing well and you are able to prove a stable income, you will find that most lenders will open up more deals to you. If they make their calculations based on your business profit as well as your income, you will have access to even better deals, with longer mortgage terms, lower interest rates, and smaller deposits.
Of course, your income isn’t the only thing that lenders will take into account when assessing your application. As part of their lending criteria, they will also consider your credit history, the property you intend to buy, your expenditure, and other factors, before granting your mortgage approval.
Speak to a mortgage advisor at YesCanDo Money for more mortgage advice related to the paperwork you will need for your application.
How much can a limited company director borrow?
How much can company directors borrow? Well, there is no one size fits all answer when it comes to this question. When applying for company directors’ mortgages, the maximum loan amount limited company directors can borrow will depend on a number of different factors.
If you are able to prove a stable income, have a strong credit report, and have the means to put down a larger mortgage deposit, you will find that you will be able to borrow more from a lender than a director whose credit rating is poor and who can only put down a small deposit.
As mentioned earlier, if the lender also considers your net profit, you should be able to increase your borrowing potential.
At YesCanDo Money, our team of mortgage brokers can look at limited company director mortgages with you and can give you an idea of how much you may be able to borrow after looking at your company director’s income.
Can I borrow based on my retained profit?
Your retained profit is the amount of net income that has been kept in reserves rather than paid to your shareholders. It can a strong indicator of the financial stability of your business but many lenders will ignore this when calculating your affordability for a mortgage. This is because they see this aspect of your company’s profit as a safety net to support your company during difficult times.
However, there are several specialist lenders who will consider your retained profit so you may still be eligible for the director mortgages, provided you have the means to prove your income and your company’s net profits.
Can a company director get a mortgage if their business has made a loss?
It’s no secret that starting a business is hard work. This applies to both sole traders and limited company directors as there is no guarantee that their business will succeed in the long term. Losses can always be expected, especially in the first year of business, but even after that initial twelve months, various factors in the market can result in both short-term and long-term losses.
If your business has made a loss, finding a mortgage will be difficult. However, there are specialist lenders who will consider your application for a mortgage as they have a better understanding than some lenders of the challenges faced by directors when running their businesses.
To learn more, get in touch with our team and we will put you in touch with the lenders who specialise in directors’ mortgages.
What size deposit is needed for company director mortgages?
As with all mortgage customers, the bigger deposit you can put down the better the loan to value. This helps give you access to better deals to further secure your chances of getting a mortgage with the lowest interest rates and lowest monthly payments. If you can’t afford to put down a large deposit, there are a few lenders willing to offer the company director a 95% mortgage (with a 5% deposit).
You will have a wider choice of lenders if you opt for 90% or 85% mortgages if you are able to put down a 10% or 15% deposit. If you can pay more, your options will widen further. As to how much you will have to pay as a deposit, well, that depends on the size of the mortgage you are applying for. The higher the loan, the higher the deposit you can expect to put down.
Can a company director obtain a mortgage with a poor credit history?
Getting a mortgage as a sole trader or director is challenging enough. But if you also have an adverse credit history, it can be even trickier.
Any applicant with adverse credit can find it difficult to obtain a mortgage, even those who are in full-time employment, but in all cases, there is still hope.
Ultimately, it depends on the reasons why your credit report has been negatively impacted.
If it’s because of an unpaid phone bill from several years ago, many lenders will ignore this as they won’t see it as a major issue.
However, if your credit rating is poor because you have a CCJ (county court judgment) against your name or if you have a recent track record of missed payments, you may find it harder to obtain a mortgage.
If a lender does accept your application, you may have to put down a larger deposit and your mortgage repayments may be higher.
Speak to us if you are worried about your credit report and we will advise you on your options.
What are my next steps if I am looking for mortgages for company directors
Your next steps as a limited company director are not unlike the steps that should be taken by any other mortgage customer. But as your choice of lenders will be limited, you should make extra effort to get yourself mortgage-ready before you make your application. By doing so, you will improve your chances of mortgage approval and a better mortgage deal.
Below we list the steps when applying for company director mortgages
1: Improve your credit rating
If you have a bad credit score, you should make every effort to improve it before approaching a lender. You can access your credit score from any of the four main credit agencies (Experian, Equifax, TransUnion, and Crediva) but as they use different data to calculate your credit score, we recommend Checkmyfile which will give you a report based on all the data that the credit agencies hold about you.
There are a number of things you can do to improve your credit score. You should…
- Check for mistakes on your credit file and let the relevant credit agency know if you spot an error
- Pay your bills on time
- Remove yourself from joint accounts with people who have bad credit
- Avoid multiple loan applications
- Get a credit-building card
More information on improving your score can be found online.
2: Get your documents together for mortgage lenders
Most bank and building societies will expect the following when considering self-employed mortgages for company directors.
- Limited company accounts (up to 3 years if applicable)
- Proof of dividends you have paid yourself
- Payslips showing your PAYE income
- SA302 year-end tax calculations
- Business accounts statements from the last 3 to 6 months
- Personal accounts statements from the last 3 to 6 months
- Proof of ID (such as your passport and driving license)
- Proof of address (such as a utility bill dated within the last 3 months)
This list is not exhaustive as lenders will sometimes ask for further information. Some documents will also need to be completed and certified by a chartered accountant.
3: Find a mortgage broker
As mortgages for company directors are hard to find, your life will be made much easier if you decide to use the mortgage advice of an experienced mortgage broker.
A mortgage broker will search the market for the most suitable lenders, help you get the right mortgage for somebody in your circumstances, and will help you with your mortgage application to improve your chances of getting a mortgage approved.
Your mortgage broker will also answer any questions you have, so if you’re a limited company director and are unsure about such things as the maximum loan to value mortgage you will be eligible for and the aspects of your company accounts that lenders will be interested in, they will explain these to you in more detail.
As we are a Fee Free Mortgage Broker, we can recommend our services to you. We don’t charge the typical fee that certain other brokers will ask for, so you can be guaranteed to save money if you use the services of a YesCanDo Money mortgage adviser.
Get in touch with our team
If you’re a limited company director and need mortgage advice and support, get in touch with our specialist team of mortgage brokers.
Our mortgage advisors have years of experience supporting a range of mortgages for professionals such as limited directors. If you’re self-employed and looking for residential or commercial mortgages, we are here to help you.
As we are whole of market mortgage brokers, we have access to 90+ lenders and thousands of deals on the mortgage market. These include the specialist lenders that are more likely to offer limited company director mortgages to their eligible customers.
For more information on limited company director mortgages, get in touch with an experienced mortgage broker on our team.
Your appointed representative will talk to you more about the requirements expected for limited company director mortgages and will search for the most suitable mortgage deals on your behalf.
After exploring your mortgage options and finding you the right mortgage deal with the lowest interest and lowest monthly payments, your appointed representative will also prepare your application to the lender.
We will do all this and more, so if you’re self-employed and looking for limited company director mortgages, get in touch with a mortgage advisor at YesCanDo Money and we will give you all the help you need during your mortgage journey.