Applying for a mortgage as a limited company director isn’t always as straightforward as it might be compared to an employee on a typical payroll basis. With many directors being paid with a mixture of dividend and wages, some lenders will require more detailed proof of income.
There’s also the issue of company directors having sums of money built-up in their business which they could be using as a mortgage deposit.
It’s not as simple as just taking out a directors’ loan for a mortgage deposit though. There are some things to consider before taking out the loan which you can read in the short guide below.
Can you use directors’ loan as a mortgage deposit?
It is possible to take out a directors’ loan from your business to then use as a mortgage deposit. When using funds from your limited company to finance a house purchase, the majority of mortgage lenders will require proof that this won’t affect your ability to afford the mortgage repayments or negatively impact your business.
In many cases the burden of proof will lie with your accountant producing documentation showing the details of the directors’ loan. The mortgage lender will also require the following details:
- Will taking money out of your business create any financial difficulties or cashflow problems for the limited company?
- What are the repayment terms on the directors’ loan that’s being used for a mortgage deposit?
If the mortgage lender is satisfied with the answers and the rest of your mortgage application, then it’s entirely possible that they will let you use a directors’ loan for a mortgage deposit.
Getting a mortgage with a directors’ loan
If you would like to explore the available options, please take the time to read our large guide to company director mortgages. That guide includes a set of FAQs which are relevant to any director looking to apply for a mortgage this year.
If you just want to get the ball rolling immediately, answer these 5 questions to get free initial advice, and possibly a decision in principle.
Before you do that though, here are some more related questions and answers concerning mortgages with a directors’ loan.
Do all mortgage lenders accept director loans as deposits?
Unfortunately, not all lenders will let you apply for a mortgage using a director’s loan. This is why it pays to use a specialist mortgage advisor who understands the market and has experience of submitting applications of this type.
For example, there are lenders that will only accept a directors’ loan on a mortgage if the money is being repaid from cash the director has financed into the business themselves ordinally – in simple terms, the repayment of a loan into the company.
On the other hand, certain lenders may not have an issue with this type of arrangement in order to finance a mortgage with the directors’ loan.
What are the tax considerations?
If you do decide to finance a mortgage with a directors’ loan, you should get advice from your account. There will be various tax implications for this arrangement, such as:
- Possibly paying more personal income tax if you exceed the rate at which the higher tax bands kick-in.
- Possibly paying more company corporation tax if the directors’ loan is not paid back inside of a 9-month period.
Can you use a directors’ loan to pay your mortgage?
You cannot pay your mortgage directly from your limited company’s bank account, but you could in theory withdraw money from your company to pay your mortgage.
Directors’ loans are one way of doing that, as well as using dividends. The process will need to be documented, as it will need to be transparent and proper according to HMRC rules.
For example, you can take a directors’ loan valuing up to £10,000 being it’s considered a benefit in kind. That means if you borrow more on a loan from your company, you will be liable for 2.5% interest to your business.
And if you then don’t repay the directors’ loan inside of 9 months, you might be liable for a massive 32.5% corporation tax on the outstanding amounts.
The bottom line is; there are ways in which you can use directors’ loans in your mortgage, but always seek the advice of your accountant and professional mortgage advisor before doing so.
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