Being a director of your own company brings many benefits, but it can also come with some negatives; mortgages often being one of them. For example, getting a mortgage as a company director isn’t always as simple compared to a traditionally employed person. You might need to jump through a few extra hoops.
However, it doesn’t have to be hard to get a director’s mortgage.
Our specialists offer mortgage advice for directors of limited companies. They have access to multiple lenders who can offer you the best terms for your situation.
Get Started Today: If you want to get started with no-obligation advice, answer these 5 simple questions to get a decision in principle.
If you want to know about how mortgages for directors work, and what the possibilities are for you, read on.
Does being a director affect a mortgage application?
Being a director of your own limited company will raise a number of extra questions by potential mortgage lenders. As a director’s income is likely to be more complicated than a standard employee or a self-employed sole trader, it is important to understand how different lenders will take different approaches to working out how much they will lend.
Some lenders will assess a mortgage application based on the director’s PAYE salary only. Whilst this stance may make the application process simple, it will often mean the maximum mortgage they are willing to offer will be substantially lower than other lenders.
How much can I borrow on a mortgage as a company director?
The amount that company directors can borrow on a mortgage will vary widely between lenders. Each lender will take their own view on how much of your true income they are prepared to consider when making a mortgage offer.
Generally speaking, lenders will come into 3 categories when considering how much they are willing to lend on a mortgage to a limited company director.
The first category, Lender A, will only consider income paid as PAYE earnings. The second, Lender B, will also include income taken as dividends, and the third, Lender C, will take a full view of the company accounts and potentially add back in expenses that they consider to be “one off” or “discretionary” such as lump sum pension contributions.
Examples of how different lenders may take different views of the income of the same applicant:
Lender A: Company director mortgage requirements
The below example shows how these most cautious lenders will view a director of a limited company who earns £30,000 salary, draws £20,000 in dividends, and makes a £10,000 pension contribution.
- Salary: £30,000
- Dividends: Ignored
- Pension Contribution: Ignored
- Total Allowable Income: £30,000
Lender B: Company director mortgage requirements
Other lenders will take a more generous view of a director’s income and these lenders will be prepared to accept both the PAYE element of your salary and the dividend income that has been drawn from the business.
This will mean a higher mortgage is achievable than with those lenders that consider salary alone.
- Salary: £30,000
- Dividends: £20,000
- Pension Contribution: Ignored
- Total Allowable Income: £50,000
Lender C: Company director mortgage requirements
Finally, there are those lenders that have an expertise in how to read company accounts and are willing to consider the whole financial picture, especially when explanations can be provided by the company accountant.
For example, it may be that a director has made a large voluntary contribution to their personal pension, which could otherwise have been taken as income.
In this scenario there are lenders that would include this payment back into the director’s income. This realistic approach would allow the most generous mortgage advance.
- Salary: £30,000
- Dividends: £20,000
- Pension Contribution: £10,000
- Total Allowable Income: £60,000
As you can see in the above examples there is a big difference in the amount the same director would be able to borrow on their mortgage depending on which lender was approached.
Which is where our specialist advisers can help.
Start Your Enquiry: A specialist adviser would be able to guide you on the most suitable lender to suit your own personal circumstances. To talk with ours, start your enquiry today.
How to get a mortgage as a company director?
As you might have guessed by now, applying for a mortgage as a limited company director isn’t as straight-forward as you would like – it requires a more bespoke and specialist approach.
We suggest that the first thing you do is speak to an expert adviser.
The adviser will take time to talk through your plans so that they get a clear picture on how best to help you. Following this initial conversation, you will be asked to provide some information which will help your adviser decide which lender(s) will be best to approach with your mortgage application.
The type of information you will be asked for will include:
- A copy of a recent credit report, ideally from Equifax, Experian, or another major credit reference agency.
- Your last 3 years finalised accounts. NB: Some lenders will accept just 1 year’s accounts.
- Your most recent years tax calculations.
Once the adviser has reviewed the information, they may have some questions for either you, your accountant or both. It is often useful to let your accountant know in advance that they will be contacted by a mortgage adviser and for you to give your permission for them to discuss your finances.
With this information at hand your adviser will be in a position to answer any questions that the lender may have, and this will help in getting an answer as quickly as possible.
Because of the complex nature of company accounts it is possible that your adviser will need to come back to you for further information of explanations. This is not unusual; it is often just a case of making sure that everything is in order so that a lender is comfortable that they have the whole picture of your finances.
After all a lender will only approve your mortgage if they believe that you are in a position to comfortably afford the repayments.
Frequently asked questions
Our advisers have been helping limited company directors get mortgages for many years, and in that time, it tends to be the same questions that get asked. Here’s the responses to the most popular questions directors want answered.
Can I use a director’s loan for a mortgage deposit?
Yes, it is possible to use funds from your company by using a director’s loan for a house mortgage deposit. Most lenders will want to make sure that this will not have an adverse effect on your business or your own personnel out goings.
For example, it may be necessary to obtain a letter from your accountant detailing the terms of the director’s loan. A lender will probably want to know:
- Is the use of company funds likely to cause the company any cashflow issues or other difficulties?
- What are the terms for repaying the directors loan?
Providing that these questions can be answered satisfactorily then it should be acceptable to many lenders to use company funds for a house deposit.
Can I get a mortgage through my limited company?
Whilst it’s not impossible to get a mortgage through your limited company, it is very rare for a lender to be willing to lend to a trading business.
What is much more common is for the buyer to set up a new limited company purely for the purpose of buying a property as an investment, otherwise known as a “Buy to Let”. These new limited companies are known as “SPV’s” Special Purpose Vehicles and are set up purely for the purpose of holding a property investment.
When setting up an SPV you will need to ensure that you apply the correct SIC codes, these are codes that describe the type of business being undertaken. i.e. property (real estate ownership and letting).
The appropriate sic codes to describe these actions are 68100 and 68209. Most people who set up a limited company to purchase property do so because of potential tax advantages.
It is therefore really important the anyone doing this speaks to a qualified tax adviser before proceeding.
Can I use a director’s loan to pay a mortgage?
Typically, a director’s loan can be used for any legal purpose, however there are rules on how much can be used and for what duration. Therefore, if a director wanted to use a loan to temporarily prop up their finances then that could be acceptable, however it would not be acceptable to permanently make mortgage repayments from a director’s loan account.
As always tax advice should be sought from a qualified tax adviser.
Do dividends count towards a mortgage?
Yes, it is possible to use dividends towards a mortgage with some lenders but not with all lenders. It often makes good sense for directors to pay themselves a combination of PAYE salary and dividends.
A lender will want to be satisfied that the level of declared dividend is sustainable over the long term and not just a temporary bonus which cannot be relied upon.
As touched on earlier different mortgage lenders have varying criteria, so it is always worth asking an expert for advice such as those used by Specialist Mortgage Online.
Can you get mortgages for new company directors?
This scenario is often where people will find it hard to get a company director mortgage; it will depend on the recent working history of the director.
If the new limited company director has just started a new business and has been trading for less than 1 year, then it is very unlikely that a lender would be prepared to lend on a mortgage. This is because there is no track record to go on and therefore no way of knowing whether a mortgage is going to be affordable.
However, there are circumstances in which a new company director can obtain a mortgage.
If it were the case that the applicant had been trading as a sole trader or a partnership and had simply decided to incorporate their business (becoming limited) then there are lenders who would consider this to be continuous trading and would happily consider the new director for a mortgage.
In this case it would be likely that the lender would require extra information from the director’s accountant. A specialist mortgage adviser as recommended by Specialist Mortgages Online will be able to advise on how best to proceed – click here to get started.
Can I start paying myself more so that I can get a mortgage?
In a word yes you can start paying yourself more to increase your chances of getting a limited company director mortgage.
As the director of your own company it’s up to you how much to pay yourself. Obviously, you should only pay yourself an amount that the company can afford, and this money should come from current or retained profits.
However, if you wish to increase your salary then that is a legitimate way of increasing your mortgage borrowing potential.
In the section below we expand on things that you can consider in order to qualify for your maximum mortgage.
I know I can afford a bigger mortgage, but I can’t prove it.
In cases such as this, how you prepare your application is critical.
As a self-employed company director you will have a high level of control over how you structure your income. Most of the time you will want to make sure that you draw income in the most tax efficient way possible.
However, structuring your income in a way that reduces your tax liabilities may have a negative effect on your prospects of being approved for a suitable mortgage and therefore a change of approach may need to be considered.
We explained earlier that lenders look at director incomes in a number of different ways. This means there are a number of things that you should consider and plan for to give yourself the best chance of getting the company director mortgage that you need.
Here are some of the things that you could consider:
- Delaying lump sum pension contributions: By making a lump sum contribution to you are reducing your profit and therefore the amount of income that you could declare.
- Capital purchases: If the purchase is discretionary you could consider whether this expense to the business will reduce the income you are able to pay yourself.
- Bonus payments: Many lenders will view bonus payments differently to regular monthly income. Some will consider just 50% of any bonus as income and some will not accept bonus income at all. As a director you may decide that rather than wait until the end of a financial year to take this income, you take it on a regular monthly basis.
You should always speak to a tax adviser before making any changes to how you structure your income. You should explain your priorities to your adviser; however, it is often the case that structuring your income to minimise tax commitments can have the consequence of reducing the amount that you can borrow on a mortgage.
I have a lot of assets but like to keep my income low.
People of have a lot of assets but a lower regular income can be viewed by some mortgage lenders as “High Net Worth” clients or HNW. These clients may have high value property with relatively small mortgages, or they may have stocks and shares or other investments, or even trust funds.
Some lenders will make special allowances for this type of client as they are considered to be a low credit risk.
In some circumstance’s lenders will use a different and more generous method of calculating the size of mortgage they are prepared to lend. By using a specialist mortgage adviser, you be able to find out which lenders have this more flexible criteria for High Net Worth clients.
How we can help
Our advisers are specialists in mortgages for company directors and can support you in finding the best deals and rates across the whole of the UK market.
They are also experts at helping limited company directors with bad credit history in getting accepted. They will assist in finding the right type of mortgage for you that considers the reality of your earnings as a company director.
When you contact us today one of our specialists can help you to work through the complexities of irregular income, expenses, and net profit to ensure your application goes to the right lender.
With years of experience in successfully completing non-standard mortgages, we are confident that our advisers could help you on the way to getting a great deal.
