Mortgages For Company Directors

What are mortgages for Company Directors?

Mortgage lenders can lend to both employed and self-employed people.

Self-employed people may consist of Limited Company Directors.

A Limited Company Director is a person that runs a company and may also be the owner of the company. Limited Company Directors are paid in different ways.  

They may have a high salary or, otherwise, they may take a low salary and receive the majority of their income in dividends.  

Some Limited Company Directors choose to leave a large amount of their income within the company and retain the profits.

Different lenders have a different ways of underwriting mortgages for Limited Company Directors.  

As a result, it is important to find a mortgage adviser that can understand your income and approach the correct lender accordingly.  

For example, if you choose to retain your profits and not withdraw your income in dividends, there would be a large difference in your lending capacity among different lenders. 

Some lenders work off solely salary and dividend basis, whereas some are happy to include retained profits within their calculation.

Your mortgage adviser will be able to work out which lender is correct for you in that situation.

Do all lenders offer mortgages for Company Directors?

All lenders can consider Limited Company Directors when offering a mortgage. The difference will be in the approach to them on an underwriting basis. 

Different lenders have their own criteria when it comes to assessing mortgages.  As a result, your mortgage broker will need to know the makeup of your income, whether it is from dividends, salary or whether you choose to keep it within your company. 

Like an employed person, a lender would also need to know the full details of the applicant.

A Limited Company Director’s deposit will be taken into account, their credit file, their debts and other commitments such as child maintenance, PCP and Student Loans.

Rules around Company Directors would generally be the same as for an employed applicant requiring the same amount of deposit and similar rules around credit history and debt obligations.

Your mortgage adviser would be able to get a full understanding of your situation, taking into account your credit history, the amount of deposit that you have, your loans, credit cards, car leases and more. 

With this information, you can be matched with the right mortgage lender, and they can consider your application as a Limited Company Director.

If you have a shareholding of the company, your mortgage adviser would need to know the percentage this is, as this will determine how a lender would class you, whether employed or self-employed.

For instance, some lenders will class an applicant with a 20% shareholding or less as employed.  Some will treat applicants with a larger shareholding, for example, 50%, as self-employed.

This would make a difference as to what documents would be asked for during underwriting and how long you would have needed to be within your role.

I am a company director and shareholder, how many years of accounts do I need to get a mortgage?

Lenders have different rules when it comes to how many years of accounts you need as a director and shareholder of a business. 

The common number of years’ accounts is 2. When this is the case, some lenders will take an of the 2 years’ worth of net profits after tax, whereas some may take the latest year into account.

There are even a few lenders that can consider taking the operating profit before tax when assessing your affordability. 

Some lenders need as little as only 1 year’s accounts before they can consider somebody for a mortgage.

In this scenario, they will likely want to know what you were doing before to be comfortable that you have a track record within that industry and your business is likely to be successful.  

Different underwriting methods will suit different applicants depending on their situation.  For example, a Limited Company Director may have had a bad year previously, but things have changed, and the next year is due to be much better. 

In this scenario, this applicant may wish to use a lender that uses the latest year when calculating income, although the lender would possibly need to know why there has been such an improvement and whether this is sustainable going forward or if this year is an anomaly.  When there is a good reason for the jump in income, there are lenders who can consider this.

The mortgage broker is important in this situation as they will be able to get an understanding of your accounts and make a recommendation for a lender accordingly.

If you would like advice to find an experienced mortgage adviser with an understanding of limited company income, please complete the contact form.

Do you get Buy to Let mortgages for Company Directors?

You do not get special products when taking Buy to Let mortgages for Limited Company Directors but Buy to Let lenders have no issues in lending to this type of applicant. 

Like with a residential mortgage the lender needs to understand your full situation.  If you are a Limited Company Director, they will want to know more about the company itself. 

They will also need to know the income that you draw from the company, whether you pay yourself in salary and dividends, or if you are retaining a profit.  It is not uncommon for Buy to Let lenders to have a minimum income criteria when it comes to earned income. 

An example of this could be £25,000.  If you are a Limited Company Director and you are paying yourself £10,000 as a salary and £20,000 in dividends, the full £30,000 could be taken into consideration for this assessment. 

Once the income criteria are satisfied, the lender will be interested in the property itself, the value and the amount of rent it would achieve.

Some Buy to Let lenders do not have a minimum income criteria at all so, therefore, as long as they are comfortable that the application makes sense and the applicant isn’t in a difficult financial position, they can consider the mortgage.

This may suit some applicants that have young, limited companies and are not showing much in terms of income.  For example, if you were a Limited Company Director earning £12,000 a year, there would be Buy to Let lenders that could consider your application. 

The Buy to Let mortgage market is a minefield, so make sure you find an experienced adviser that can give you the advice that you need.

Do you get bad credit mortgages for Company Directors?

It is possible to get a mortgage if you have had bad credit and you are a Company Director. 

Like with an employed person, some lenders can consider applicants that have had adverse credit in the past, but they will need to know the full situation. 

Limited Company Directors with bad credit may need to have a higher deposit that an applicant with a clean credit file. 

Bad credit comes in many shapes and sizes, so it will be for your mortgage adviser to understand the background of your credit history and then approach a lender accordingly.

Bad credit could comprise bankruptcy, individual voluntary arrangements, County Court judgements, debt management plans, property repossessions, defaults and more.  Due to a large number of examples of bad credit and the other factors that are taken into account when you are looking for an adverse credit mortgage, it is important to find a mortgage adviser that understands this market.  Make sure you tell your mortgage adviser full details of your adverse history, along with your full situation.

To find out more about your credit history you can sign up for a free trial from Check My File.

How much can you borrow for Mortgages for Company Directors?

Different lenders have different income multiples and many other factors are taken into account when a lender calculates your maximum income. 

Limited Company Directors are not necessarily lent less or more than what they would if they were an employee. 

Where this may vary is if you were an employee earning £50,000 a year, but as a Limited Company Director you earn £25,000 a year and retain the other £25,000 of your profits after corporation tax within the company, some lenders would only consider the £25,000 that you have been paid when assessing your income. 

There are, however, lenders that would take into account both figures when assessing an application. 

Lender’s affordability calculators also take into account the deposit for the property, any dependants that you have, any debts and the monthly payments applicable to them. 

Different levels of income may also result in different income multiples.

If you are a Limited Company Director and you wish to find out how much you can borrow, look for an experienced mortgage adviser that can inform you of your options.

I am a Limited Company Director, do a need a qualified Accountant when I am applying for a Mortgage?

If you are applying for a mortgage as a Limited Company Director, the lender will want to know details of who your accountant is and what their qualifications are.  

A lender will probably ask for the financial details of the business and they will want your accountant to be qualified if you are running a limited company. 

If your accountant is not qualified, it is not uncommon for the lender not to accept the figures.  In this situation, they may insist a qualified accountant countersigns the accounts. 

Different lenders accept different qualifications, so if you are considering a mortgage for a Limited Company Director, talk to a mortgage adviser and explain your situation. 

Your mortgage adviser will be able to check with the lender whether your accountant’s qualification is acceptable to them.

What documents do Lenders ask for on Mortgages for Company Directors?

The documents that will be needed will vary depending on the lender, however, they will likely want company accounts, limited company bank statements, personal bank statements, tax calculations and tax year overview statements. 

The company accounts will show the profit and loss of the business, along with assets and liabilities.  The tax calculations and tax overview statements will show how much has been paid to you by way of salary and dividends during the tax year. 

The limited company bank statements will show the current cash flow of the business and verify whether it is in a healthy financial position at the current time. 

Your mortgage adviser will be able to confirm which documents will be needed for the lender.

Do you need a special type of Mortgage Broker for Mortgages for Company Directors?

You do not necessarily need a special type of Mortgage Broker when applying for mortgages for Company Directors. 

However, it would be recommended to look for a mortgage adviser with relevant experience for your own situation.

Some mortgage advisers may not do many applications for self-employed people and if this is the case, you will need to consider whether they have the experience to place your mortgage. 

Limited Company Directors’ mortgages can be more complex, so speak to your mortgage adviser to find out whether they have the background knowledge to place your mortgage with the right lender and proceed only if you feel comfortable. 

Conclusion

It is certainly possible to obtain a mortgage as a Limited Company Director however different lenders treat applicants differently depending on your shareholding or how you receive your income. 

You may need a Specialist Lender and it will be the job of your mortgage adviser to fully understand your scenario and how your income is paid, whether you receive it in salary, dividends or retain it within the company. 

Mortgages for company directors can be complex and it is important to find a mortgage adviser with the correct experience to place your mortgage.

If you would like I NEED ADVICE to match you with an experienced mortgage adviser who will talk through your options with no obligation to proceed, please complete the contact form.