Limited Company Director Mortgage
- A team of down to earth mortgage advisers
- Working for you to find the right lender from a huge panel
- Designed to save you time (and a few headaches!)
- Experienced in Bad Credit Mortgages
Get in touch for an initial fee free, no-obligation chat with an adviser about the most suitable mortgage option for you.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.
Your property may be repossessed if you do not keep up with your mortgage repayments.
Limited Company Director Mortgage
- A team of down to earth mortgage advisers
- Working for you to find the right lender from a huge panel
- Designed to save you time (and a few headaches!)
Get in touch for an initial fee free, no-obligation chat with an adviser about the most suitable mortgage option for you.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.
Limited Company Director Mortgage
Anthony McQuilliam discusses mortgages for limited company directors.
Are there mortgages tailored to limited company directors?
Mortgages aren’t specially tailored for limited company directors, but a lot of lenders have particular criteria that benefit this kind of client. We’ll go through all the details as the podcast continues, but some lenders criteria’ can massively benefit a limited company director.
How do I prove my income and document my trading history?
There are three parts to getting a mortgage. The first is your deposit, the second is making sure your credit is good and the third is your income.
For a limited company director it’s not as easy as just providing three payslips – even if you are on a direct salary from your business. When you’re applying for a mortgage lenders want to see your last two years’ business accounts.
They will look at your net profit, your expenses and the income generated. They will document your director’s salary and look at your personal tax computations and tax year overviews to get a full picture of yourself, the business and how your income is generated.
Most lenders ask for two years’ accounts, but there are a few niche lenders that will be happy with your application even if you’ve only had one year in business.
How is income assessed as a limited company director?
Certain lenders have criteria that benefit limited company directors compared to a sole trader. A lot of lenders want to see the money you’ve drawn from the business: your profit, direct salary or dividends.
But often there’s profit in the business that won’t go towards your affordability. Some lenders will let you take this into account as well.
If you own 100% of the business, not only would we look at the director’s salary you’ve drawn from the business, but also the net profit that the business has earned. So even if you haven’t withdrawn all the money from the company you can still use that for affordability.
If you own 50% of the business and it made a profit of £100,000 last year, we still use all of your salary. But we would only use your share of the profits, in this case £50,000, to calculate how much you can borrow.
Do dividends count as income for a mortgage?
They do indeed. Again, that’s dependent on the lender that you go with. Generally lenders look at what you’ve taken from the business: your director’s salary and dividends. They would use an average of the last two years to calculate how much you can borrow.
If you go with a lender that looks at the most recent accounts, they just look at what you’ve taken as dividends and salary for that year.
However, if you’re looking at borrowing a much higher amount, it is usually best to go for a lender that doesn’t look at the dividends, but instead looks at your director’s salary and also the profit the business has earned. Obviously you can’t pay yourself dividends without the business turning a profit, so looking at it this way puts you in a position where you can borrow substantially more.
What about if I have a fluctuating income?
It depends how you define fluctuating because there could be a few different variances.
For example, let’s say your business has fluctuated upwards. So in the previous year you made £50,000 in profit, and in the latest year you earned £100,000. Most lenders look at the average of your last two, so they would use £75,000 for the affordability calculation.
With some lenders, as long as there’s a valid reason for the increase in profit, they can use your most recent year’s accounts.
If it was the opposite and your profit went from £100,000 to £50,000 a lot of lenders will want to know why there is a decrease. Then they would use the lower of the two to calculate your borrowing.
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What about pay as you earn income?
Because it’s your business they often wouldn’t look at PAYE income for affordability. If it’s a director’s salary as documented on tax year overviews and on the limited company accounts, that’s absolutely fine. Because you’re employed by the company, lenders class you as employed – but that’s not the case if you are a 100% business owner.
If you own maybe 15% or 20% of the business and you’re on PAYE, some lenders will take you as being employed rather than as a limited company director. But there’s a lot of variance when you look into this.
As a general of thumb, if you’re a 100% business owner you would not be able to use the full PAYE unless it’s all documented on your tax year overviews and your tax computations.
Can you use net profit when applying for a mortgage?
Yes, depending on the lender. If you’re looking at maximising the borrowing amount, it’s usually in your best interests to find a lender that will use your net profit, because not all of your income is drawn from the business.
It usually means you can borrow slightly more than with a lender that just looks at what you have withdrawn. A lot of lenders will look at your net profit after tax to calculate your affordability. But a few niche lenders look at your net profit before tax, which can make a big difference in terms of the loan amount.
How does it work if you have gone from sole trader to a limited company recently?
Most lenders are fine with this, with a bit of a caveat. Let’s say I was a mortgage broker and then the next month I opened up a zoo. I’ve gone from being the sole trader to opening a limited company up in a completely different industry.
We wouldn’t be able to help on that. But if you’re a plumber or a carpenter and you’re in the exact same line of work, going from sole trader to a limited company, that’s fine. The lender would look at the last two years’ worth of self-assessment tax returns, your SA302s and tax year overviews to calculate how much you can borrow. So it’s still doable, as long as you’re in the exact same line of work.
How much can I borrow and what deposit will I need?
This is obviously everyone’s most important question, because without knowing this you don’t know what kind of property you can buy.
The amount you can borrow varies a lot when you’re a limited company director, which is why it’s so important to speak to a mortgage broker or financial advisor. We can look at your situation and explain how much you can borrow, based on your income.
Most lenders will look at the average of your last two years’ accounts to figure out your net profit and your salary. You can usually borrow around 4.5 to 5.5 times that income, depending on the lender.
A lot of lenders will just look at your most recent accounts. So again, that’s why it’s so important to an expert. We can assess your personal situation and find the best route to achieve your plans.
How can a mortgage advisor help?
My personal advice for limited company directors is to make sure you’re well prepared. So if you’re thinking about buying a property within the next six to 12 months it’s always worth having a conversation with a mortgage broker way in advance.
We can figure out roughly how much you can borrow, how much the monthly repayments will be and also how much deposit you have. There’s nothing worse than falling in love with a property only to find out that actually it’s not something you can afford.
So have that conversation up front, before you start looking for a home.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
Bolt Mortgages is a trading style of Just Mortgages Direct Limited which is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.
Approved by the Openwork Partnership on 13/04/2024.
