Getting a mortgage as a limited company director
Despite the strict lender policy on self-employed income requirements, directors of limited companies can usually get a mortgage relatively easily in comparison.
Whether your company hasn’t got a long trading history, or you’ve retained profit in your company for tax purposes, as long as you speak to a broker who has a knowledge of the market, you should be able to find a lender willing to give you a mortgage.
What about my trading history?
Ideally, you need to have been trading for a minimum of 12 months to get a mortgage.
You need to have a full tax year’s set of accounts, but if your trading year covers two tax years, there are lenders that can look at a rolling snapshot rather than making you wait to finish the 2nd tax year.
What if I’ve recently changed my trading style?
Many sole traders change to limited when their business starts earning more money. If you do this and don’t have a full year’s trading under your new style before applying for a mortgage, then most lenders will look at it as a new business and require 1-3 years’ worth of trading accounts – even if your business has been operating for ten years.
Do I need a bigger deposit?
Limited company directors are usually treated the same as every other borrower when it comes to deposits, unless you use a specialist lender, as they prefer bigger deposits to mitigate the risk.
How will my income affect my affordability?
Lenders have begun capping their lending on mortgages for company directors but follow the usual rule of thumb when it comes to income multiples to work out how much they can lend, and this is usually between 4-5x your income depending on your credit rating.
Is my income classed as something else when I’m self-employed?
Your accountant will likely have told you to take a salary up to the tax-free threshold and use dividends for any other income. This would enable you to avoid paying further income tax and provide growth for your business, as you’re leaving more money in the company.
However, most lenders consider ‘income’ as the actual drawings from your business. This means that, if your business has made £200k profit and you have paid yourself £40k through salary and dividends, lenders will assume your income to be £40k.
Despite you having plenty of money within the business, many high street lenders look at self-employed mortgages this way, which is why a specialist lender who looks at the full picture may be more suitable.
What if I want to use retained profit as my deposit?
Specialist lenders can look at mortgages for directors based on company profit, even if some of your income is retained within the business.
If your limited company is relatively new, you may want to reinvest your profits straight back into the business for growth. Using your retained profits to get a mortgage means you can have the best of both worlds, meaning it’s a viable solution for both well-established businesses and SMEs.
Do I need to prove my income?
As standard, yes. All lenders require evidence of income, but for a company director you will need to provide your finalised accounts and/or your SA302 and accountant’s reference.
It’s likely that you will also need to provide the last 3 months’ business and personal bank statements.
What if I have adverse credit?
If you have a bad credit rating, the number of lenders that will consider your mortgage application will be restricted depending on how severe the issues are.
My business has made a loss in the last three years…
If you’ve declared a loss within the last three years, getting a mortgage with a high street lender can be difficult as it can indicate a lack of income reliability and increased risk.
However, there are specialist lenders who will look at directors that have made a loss 2-3 three years ago.
Unless your salary is deducted before profits and you have a satisfactory explanation for the underwriter, it’s highly unlikely that you will get approved if you’ve made a loss in the most recent year.
If you’re the director of a growing business and you’re making more income in the most recent year than you were the year before, you may also find it difficult to get approved, as lenders tend to average the last 2-3 years’ income.
What about remortgaging?
A majority of lenders only allow capital raising for debt consolidation, home improvements or certain consumer goods like a car or holiday.
When it comes to remortgaging for business investment, there are only certain specialist lenders that will look at the application.
For advice on getting a mortgage if you’re a limited company director, speak to one of our expert advisers who will be able to help you with the next steps.