Limited Company Director Mortgage
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Is it hard to get a mortgage as a limited company director?
Owning your own business can be hard work. That doesn’t mean applying for a mortgage as a limited company director has to be tough, too.
There are a significant number of limited company directors in the UK. Lenders don’t want to make it difficult for them to apply for a mortgage.
Your business needs to be profitable, and your personal income, expenditure, and credit history will be assessed.
With the right mortgage advice and some careful preparation, it should be perfectly possible to obtain a suitable mortgage offer.
How long does my limited company need to have been trading for before I can get a mortgage?
Lenders generally want to see at least two full years’ figures.
It may be possible to get a mortgage with one year’s accounts, but your options will be more limited.
The longer your business has been trading for, the more evidence lenders have of a sustainable income, which makes it easier to get a mortgage.
I’m employed by my own limited company – am I employed or self-employed?
How big is your percentage stake in the business? Some lenders will see you as self-employed if you have more than 25%. Others see you as self-employed with just a 20% stake.
Having a smaller share should mean you are classed as employed.
What income can be used for a limited company director mortgage?
When assessing income from self-employed limited company directors, lenders will either use salary and dividends, or salary and your share of profits in the company accounts. Using profits in the accounts can be advantageous, especially if you haven’t drawn much by way of salary or dividends.
It is important to research lenders carefully so you can be sure you are applying to one who accepts the kind of income you want to use.
If income is increasing, lenders will typically take an average of the latest two years.
If income is decreasing, they may use the latest year’s figures on their own. You may have to provide more documentation to show the business is sustainable. If lenders think the company is on a downward spiral, they may not want to lend.
Why The Mortgage Store Chorley?
Exclusive rates you won’t get directly from lenders
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Ongoing rate monitoring until completion as standard
Do you have a question?
How do I prove my income as a limited company director?
The longer you have been self-employed for, the easier it is to secure a mortgage. This is because you have more income history for lenders to work off.
Most lenders will need to see at least two years’ worth of earnings. This is to determine that your business, and your income from it, is sustainable. Using a qualified accountant is advisable.
Before applying for a mortgage, ensure that your financial records are in order. This includes up-to-date business accounts, tax returns, and bank statements. The more organised and clear your financial records are, the smoother your application process will be.
It is also important to note that a lot of lenders can only accept income figures dated within the last 18 months. If your latest set of figures is over 18 months old, you will need to get up-to-date ones before applying for a mortgage.
Salary (PAYE)
Lenders will treat you as self-employed if you own more than 20-25% of the business. The exact percentage depends on the lender you choose. As a self-employed person payslips will not be acceptable, even if you are an employee of your own business.
Instead, you will need to provide your tax calculations and corresponding tax year overviews for the past two years as a minimum. The lender may also require bank statements to confirm the income.
In some instances a lender may only accept an accountant’s certificate.
Dividends
Your tax calculations and tax year overviews will evidence any dividends you have taken. Again, the lender may require bank statements to confirm the income.
In some instances a lender may only accept an accountant’s certificate.
Profits in the accounts
Two years’ worth of company accounts will be needed to show profits. The company accountant may also need to confirm your shareholding in the business.
Tax calculations and tax year overviews can evidence your salary. Accounts may not confirm it, especially if there is more than one director.
The lender might also request business bank statements to show current turnover. This is to reassure the lender that the business is on track to make at least a similar amount of money again in the current tax year.
What if my income fluctuates throughout the year?
Some businesses do experience peaks and troughs at certain times of the year.
A mortgage advisor, such as ourselves, could be really useful here. As long as we understand the business and the reason for the fluctuations, we can help paint the picture to a lender to try and reassure them.
More documents might be needed to support this, such as a year’s worth of bank statements or an accountant’s reference.
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How much can I borrow?
There isn’t a standard calculation that applies to all lenders. They have to do a personal assessment of your financial situation first.
That involves looking at your income and your expenditure, as well as your household make-up and sometimes even where in the country you live or want to live.
Speak to a mortgage advisor who isn’t tied to one bank or building society. They can check your affordability with multiple lenders. You might be surprised by how much the calculations can differ!
What deposit is needed?
Your circumstances will dictate what is required, but lenders typically want at least 5% of the purchase price as a deposit. More might be needed if your credit score isn’t high enough for a 5% deposit.
Putting down a bigger deposit is better. Not only does it mean you’ll need to borrow less, it can make lower interest rates available to you.
Can I buy property through my limited company?
Most lenders will only consider lending to limited companies for buy to let properties.
In these instances, the limited company typically needs to be a special purpose vehicle – in other words, set up solely for buying and renting out properties. Companies trading in other industries often won’t be eligible.
How can The Mortgage Store Chorley help limited company directors?
At The Mortgage Store Chorley, we’re here to help limited company directors get mortgages easily. We know it can be tricky, but we make it simple. Whether you’re buying your first home or switching to a new mortgage, we find the right deals for you.
We understand how your income works as a director, so we’ll find lenders who get it too. We’ll take the hassle out of getting a mortgage so you have more time doing what you do best – running your business.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
