Mortgages for Company Directors

In our guide to limited company director mortgages, you’ll learn how to find such a broker, what kind of criteria these products usually come with, how to evidence your income and much more. Plus, in our FAQ section, we tackle the questions we hear most often from limited company directors who are looking for a mortgage.

Eligibility

There are mortgage products aimed specifically at limited company directors and mortgage lenders who specialise in this demographic. If you’re a limited company director, the way you will have to declare your income and how it will be assessed will be different to a customer in full-time employment, and this is why it’s important to find a lender who understands your employment situation. Here’s a rundown of the criteria you’ll typically need to meet…

Trading history

You typically need to have been trading for a minimum of 12 months to get a mortgage (the only exception to this is for doctors and other professionals who are potentially eligible with a lesser trading history subject to evidence of contracted future income).

Ideally, you’d have a full tax years’ set of accounts, however, if your trading year spans across 2 tax years (which often is the case) then there are lenders that consider a rolling 12 months snapshot rather than making you complete the 2nd tax year before applying.

Deposit amount

The amount of deposit company directors and business owners are asked for will likely depend on whether your mortgage application is straightforward (i.e. no adverse credit, adequate proof of income etc) or complex (bad credit, recently became self-employed etc).

The table below puts this into perspective…

For the most part, eligible company owner borrowers are treated the same as any other borrower in terms of deposit requirements, up to 95% loan to value. Things sometimes change when you use specialist lenders because they try to mitigate the increased risk against larger deposits.

Typically, with a 15% deposit you will have access to the majority of specialist lenders (there is one specialist lender who will consider a 95% loan to value ratio (LTV) in certain circumstances). If you have adverse credit the requirement may be more depending on what the issues are and how recent they are.

Loan to value ratios

The maximum loan sizes on mortgages for business owners vary from lender to lender but are usually restricted to a certain loan to value (LTV) ratios.

A rough overview is outlined below:

Proving income

All lenders require evidence of this income and can ask for it in different forms.

The main documentary evidence you’ll need is as follows:

To find out which accountancy qualifications are accepted by mortgage lenders read our standalone guide on this topic.

It’s important to bear in mind that some lenders will only want accounts, an SA302 or a reference, others require both accounts and an SA302.

Affordability

Since the roll-out of mortgage market review (MMR) many lenders have moved away from typical income multiple models and have implemented more of an affordability-based assessment.

That said, they do cap lending on mortgages for company directors at certain limits and the income multiple rule still offers a good guide as to the maximum you will be able to borrow.

Income calculation

How a mortgage lender calculates your income for a mortgage application will depend on what type of company director you are – i.e, whether you’re a sole trader, in a partnership or a limited company director.

The table below puts this into perspective…

As a company director, your accountant will most likely have recommended you take a salary up to the tax-free threshold, and then dividends for any other income. It is common for company directors to want to leave cash in the business to a) avoid paying further income tax, or b) provide growth funds for the business.

The impact of this, however, is that most lenders consider ‘income’ as being the actual drawings from the business, so if your company has made a profit of £200k and you have only paid yourself £40k through salary and dividends lenders will consider your income to be £40k.

This is where a lot of mortgage applications for self-employed company directors fall down because most of the high street lenders operate in this way and it takes specialist knowledge of the niche alternatives to find a suitable lender.

Dividends

With mortgages and dividend income, the tax liability is lower than standard earned income through a salary or taxed net profit, which in effect puts more cash in your pocket on a monthly basis.

There are some lenders willing to lend more than usual, noting that the affordability will be greater. This is particularly important for those looking for the maximum company director mortgage loan they can get, as it can calculate the dividends in to show higher affordability and get them a larger mortgage than they could obtain elsewhere.

Borrowing using profit retained in a limited company

Thankfully the specialists can consider mortgages for company directors based on the company profit even if you have retained some income in the business, and using the above scenario these would consider income to be the full £200k.

The impact this has on maximum loan amounts can be huge, as per the illustration below:

Not only can this information be pertinent to large well-established and highly profitable business owners but also with mortgages for small business owners.

In the early days of a limited company, many owners want to reinvest any profits directly back into the business in order to grow it. Not knowing that limited company directors can get mortgages using retained net profits could mean that they end up choosing between one or the other unnecessarily when, in reality, they could have had the best of both worlds.

For further information on this topic, you read our guide to using retained net profit to get a mortgage.

Remortgaging to raise capital – business and other purposes

If you have equity in your property and are looking to borrow money for your business (or to invest in another business or asset), it’s likely you’ve been declined as the majority of lenders only allow capital raising for consolidating debt, home improvements, or perhaps consumer goods such as a car or holiday – when it comes to business purposes there are only a handful of specialist lenders that will consider the application.

With these lenders, you can get up to 85% loan to value as a maximum (subject to usual affordability etc), even if you have had adverse credit in the past.