Mortgages for Limited Company Directors

If you’re applying for a mortgage as a Limited Company Director, it’s essential to be organised from the beginning. The process can be more complicated than a standard self-employed mortgage so arm yourself with an experienced mortgage advisor to keep it simple.

This guide tells you everything you need to know about securing a mortgage as a Limited Company Director but you can always reach out to us with your questions via our online chat, on the phone, or face-to-face in our offices.

Can a company director get a mortgage?

If you’re a company director hoping to get a mortgage, it’s easy to get overwhelmed with where to start. It can be challenging to navigate the different criteria of the hundreds of mortgage lenders, especially when not many are suitable for self-employed mortgage applicants and the choices become even narrower when it comes to the complexities of a Limited Company Director.

The good news is there are plenty of lenders who specialise in providing mortgages to Limited Company Directors.

What’s the eligibility criteria?

It’s essential to remember that each mortgage lender has different criteria when considering applicants. While that can make the search for a good lender feel tedious, it does mean that even if you’ve previously been rejected, there could still be hope.

How much do I need for a deposit?

The deposit requirements for a company director are no different to that of an employed applicant, with those that tick all the right boxes in terms of affordability and good credit history able to get the maximum loan-to-value (LTV) ratios up to 95%.

You’ll require a larger deposit for more complex mortgage applications, such as poor credit or limited trading history.

With a 15-30% deposit and a good credit history, you’ll gain access to most specialist lenders with lower interest rates and flexible terms.

Speak to a member of our specialist mortgage team for bespoke advice on how you can secure a mortgage as a Limited Company Director

How does a lender assess my income?

Assessing affordability is different for a Limited Company Director compared to a typical employed mortgage application.

The advice given to you from your accountant may have been to maximise tax efficiency, for example, by taking a salary up to the tax-free threshold and withdrawing dividends for the rest of your income.

Most lenders will only acknowledge the income you’ve withdrawn from the business (salary and dividends) and will not consider the rest of the profit made from your company. So if your company has made a £250,000 profit and you’ve paid yourself £50,000, then most lenders will assess your affordability based on the £50,000.

Most high-street lenders assess affordability based only on your Director's Salary plus Dividends (income withdrawn). However, to maximise your borrowing, a growing number of specialist lenders will consider your share of the Retained Profits (the net profit remaining in the business) as part of your income. Typically, these lenders require the director to have a minimum 20–25% shareholding in the company.

If you’re looking to maximise the amount you can borrow, it’s essential to know where to look. Some specialist lenders will consider your share of the company net profit, which can make a massive difference if you’re trying to get a larger mortgage.

Using the example above, a standard lender who would assess your affordability based on your income + dividends (£50,000) will enable you to borrow up to £250,000. However, a specialised lender who considers your company profit (£250,000) would allow you to borrow up to £1,250,000, which of course, is a massive difference.

Note: the above figures are examples only, and different lenders will have different ways of calculating how much you can borrow.

Tell a broker how you receive your income to find the right lender

However you receive your income as a , we urge you to ask one of our brokers for advice before applying for a mortgage.

They know where to look and who to approach, so call or use the online chat to learn what your next steps might look like.

How do I prove my income?

You’ll need at least three months of bank statements to evidence your income.

Mortgage lenders will also usually require a copy of your finalised accounts or SA302 year-end tax calculations from HMRC, although sometimes they request both.

In addition to accounts or SA302s, some lenders will require a signed Accountants Certificate which is a summary of your business finances prepared and signed by a qualified accountant. While some still accept 1 year of trading, most mainstream and specialist lenders now prefer a minimum of two full years of finalised accounts.

In an ideal world, you’ll be able to provide accounts for at least one full tax year, with some lenders requesting two or more years' accounts to help them build a financial picture of you.

How does trading history affect mortgage availability?

0 - 1 years 

Most lenders won’t provide a mortgage but a handful may under limited circumstances, for example, if there is proof of future income in the form of a contract, or if the business has changed from a sole trader to a Limited Company for tax purposes.

If you are a contractor, even with a limited trading history, some specialist lenders can use your day rate to calculate your annual income, provided you have a strong, ongoing contract.

1 - 2 years 

A minimum of 12 months of trading can open up the range of lenders available, though some lenders will ask for a complete 2 years of trading before they’ll consider the application

2- 3 years 

Limited Company Directors with 2 - 3 years trading history can expect that most lenders will be open to lending to them, subject to credit checks and other eligibility criteria.

Can I get a mortgage with less than a year’s trading history?

As a general rule of thumb, finding a mortgage with less than a year’s trading will be a struggle without specialist advice, although it could still be possible if you have evidence of contracts guaranteeing future income, such as doctors and other professional. 

Steady years of reliable income and subsequently, profit, can indicate that the applicant has a sufficient source of income to cover their outgoings, specifically, their mortgage but don’t panic if you don’t have years of trading history. Our advisors know where to look for the lenders that do approve mortgages for limited company directors with new businesses

Can a Limited Company Director use a remortgage to raise capital for their business?

Yes, if you need to raise money to reinvest into your business or consolidate your business’ debt, you might be able to use the equity in your home or another property you own as security for a remortgage. 

However, some mortgage lenders have lending criteria that don’t allow them to approve remortgages if the capital is to be used for: 

• Financing a startup
• Repaying gambling debts
• The purchase of stocks and shares
• Repayment of tax bills

Think carefully before signing a contract. There is a risk that comes with remortgaging to raise capital, whether the money is invested into a business or not. You could lose your property if you fail to make the repayments on time and in full so always work out your repayments carefully so you’re prepared.

How much can I borrow on a remortgage?

Remortgage agreements vary but some lenders will loan up to 85% of a properties’ value. If you’re remortgaging to raise capital, lenders might cap their maximum remortgage amount but your circumstances like your income and amount of equity will affect that. 

The deals with lower LTV rates i.e. 70% will likely be charged at a lower rate of interest which usually makes them cheaper, however, remortgage fees or early repayment fees can affect how good a deal is.

Getting this type of finance could be a possibility for you though you’ll need to prove that you can make the repayments for the remortgage as well as meet your chosen lender’s eligibility criteria.

Ask a mortgage broker to show you who the best lender is if you want to remortgage and they’ll include all the costs involved before recommending one.

Your next steps if you need a mortgage

Review your credit history

Do you need to make improvements to your credit score? Is there inaccurate information still on one report but not on another with a different CRA (credit reference agency)? Lots of things can drag your score down and lenders prefer borrowers with a higher score.

Unfortunately, this is one of the ways they try to judge whether you’re a safe borrower.

You can access a copy of your credit report using Checkmyfile which is the only credit report that includes data from four credit agencies.

Improve your credit score

Remove any old associations to ex-partners and even old uni housemates. An old bill with an account in multiple names might still be lingering and it might be in your interest to update that.

Make other improvements if possible, like making sure your name and address are the same for all of your bank accounts, credit accounts and the electoral.

Find your mortgage documents

That might include

• Proof of ID (passport/drivers licence)
• Proof of address (dated in last 3 months: utility bill, credit card statement or council tax statement – not a mobile bill)
• Proof of earnings (last 3 months payslips & P60)
• Full last 3 months bank statements for any active accounts

• Proof of deposit (savings statement or gifted deposit letter)

If you already have a property in mind or you’re applying for a remortgage, it can also be helpful for your mortgage broker and then your lender, if you have details of the property, including information about the number of bedrooms and bathrooms and the construction type.

Once you’re ready, send your reports and documents to your mortgage broker so they have the most updated information about you and can find you lenders that you’ll be eligible for.

Choose your mortgage broker

We’re incredibly proud of our team. Each of our brokers is CeMAP qualified and a handful specialise in mortgages for Limited Company Directors, making them the perfect experts to go for if you’re looking for an affordable mortgage with terms that fit in with your plans.

Call 02380 980304 or send us some quick details via our enquiry form. We won’t hassle you and we certainly won’t push you into a decision about which lender to go for.

The network of banks and lenders we have access to is vast, so there are plenty of deals to compare. If we think a mortgage isn’t quite right for you, or that a better option is available elsewhere, we’ll always speak up.

FAQs

Do my accounts have to be signed off by a chartered accountant?

No, some lenders will accept SA302 year-end tax calculations which the applicant has submitted, although the majority of lenders will require them to be completed by a chartered accountant

Can I borrow using my latest years accounts?

Yes. If your business grows year on year, it can be challenging to get the mortgage you require. Many lenders will use an average of the previous two or three-year income to determine how much you can borrow.

For example, if in 2018 you made £20,000, in 2019 you made £30,000, and in 2020 you made £50,000, the average over the three years is £33,333. Therefore, the maximum loan amount using a 5x multiplier would be £166,665.

Fortunately, some lenders will use your most recent year's income which in this example is £50,000. Therefore, again using the 5x multiplier, the maximum loan amount would be £250,000.

Again these figures are used for examples only, and all lenders have different means of assessing your application. Speak with one of our advisors and we’ll find the best mortgage product for you.

I’m a company director with bad credit. Can I still get a mortgage?

Yes, however, it depends on the severity and recency of the bad credit, and each lender has different criteria. If your bad credit is minimal, such as a missed payment or two, it’s far more straightforward than if you’ve got CCJs or bankruptcy, which will reduce the number of lenders available to you.

Speak to one of our bad credit mortgage advisors who will be familiar with the criteria and preferences used by mortgage lenders and will be able to give you bespoke advice

Can I get a mortgage if my company has made a loss?

If your company has made a loss in the last three years, it can be challenging to get a mortgage approved, at least with mainstream lenders, due to the increased risk of income instability.

However, we work with specialist lenders who accept the struggles businesses go through, especially in the early stages. Therefore, if your losses are older than two years and you have evidence that the company has made a recovery, there may still be options available

Can I get a mortgage if I have changed my company type?

It can be difficult to get a mortgage if you’ve recently changed your company type from sole trader to a limited company. Unfortunately, most lenders will treat it as a new company even if you’ve been running the business for years and still want the standard one to three years worth of accounts.

The good news is, some lenders will be happy to consider the accounts of the previous business even though technically it is no longer trading.

How do I get a copy of my SA302?

HMRC will hold the information regarding your SA302 tax calculation and the tax year overviews. There are different ways of getting these depending on how you usually submit your tax return.

You can print your SA302 calculations and tax overview from the online portal you used to submit them. Alternatively, if you use a chartered accountant, they’ll be able to provide you with a copy.