Mortgages for Company Directors
As a company director, it can sometimes be difficult trying to find the right mortgage deal. You might have discovered that the criteria of mainstream lenders is not particularly suited towards self-employed applicants. It can be even less relevant to limited company directors, whose finances are often more complex.
If you run your business as a limited company, it can be a challenge knowing where to begin when looking for a competitively priced mortgage. Here, we’ll run through some key pointers.
Get in touch for a free initial, no-obligation discussion about your mortgage situation.
- Getting a mortgage as a company director
- Read our self-employed mortgage guide
- Try our self-employed mortgage calculator
- Company directors’ mortgages using latest year’s accounts
- How to find the best mortgage lender as a company director
- How much can company directors borrow for a mortgage?
- Will I have to put down a bigger deposit as a company director?
- I have declared company losses, can I still get a mortgage?
- Finding the right mortgage advice as a company director
- Frequently asked questions…
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Getting a mortgage as a company director
As a director, it’s possible to find lenders who are willing to offer you a mortgage on reasonable terms. However, it is not always straightforward. Typically, these will be smaller, specialist lenders who can offer more flexibility when it comes to assessing your income.
However, like all lenders, they will each have their own criteria for calculating affordability. They will also assess your profits and assets differently when deciding how much you can borrow.
When applying for a mortgage as a company director, most lenders will expect your company to have been trading for a year beforehand. They will require you to provide at least one year’s worth of accounts, certified by a chartered accountant. However, they may often request up to three years’ accounts.
If your tax year does not match the usual HMRC April to April template, then a lender may consider the last 12-month trading period, rather than making you wait until the end of the current tax year.
Company directors’ mortgages using latest year’s accounts
Are your company accounts showing a marked improvement for the current year compared to previous performance? This could obviously be for a number of reasons, such as growth after the initial start-up, market expansion, acquisitions or mergers, or a run of successful tenders.
This will place you in a stronger financial position for borrowing. Many lenders will be prepared to offer a loan based on this amount, rather than an average of the previous few years, if this revenue can be shown to be sustainable and not simply a one-off.
How to find the best mortgage lender as a company director
The criteria for a mortgage and the policies on income requirements can vary greatly from lender to lender. However, mortgages for limited company directors are not necessarily hard to find or secure.
Applicants who have been declined by mainstream banks and building societies can usually find help from specialist lenders. Understanding your situation and knowing which lenders to approach based off this is key.
Get in touch today and we will pair you with one of our expert advisors who can help you get the right deal.
As a company director applying for a mortgage, you will generally need provide a specific set of documents to show your income, business stability, and affordability.
As someone who is classed as self-employed, there are some extra document requirements compared to someone who is in conventional employment.
Here is a list of key documents you will typically be required to provide:
- Identification
- This is most commonly a driving license or passport.
- Proof of identification will also need to be provided to your lender. This is commonly some form of utility bill or letter dated within the past 3 months.
- Income evidence
- SA302 – this will give lenders a tax year overview of your business, and it can be obtained as soon as you have submitted your Self-assessment tax return[1].
- Company accounts – depending on a lender’s requirements, they will need anywhere from 1 to 3 years’ worth of company accounts prepared by a chartered accountant.
- Bank statements
- Personal bank statements – lenders will normally require around 3 to 6 months’ of bank statements to gain an insight into your income and expenses. This will help them understand your financial circumstances when determining how much you can borrow. Your personal bank statements can also be used to show your deposit, which lenders like to see.
- Company bank statements – again, these will need to be from the past 3 to 6 months, depending on your lender. This will provide insight into the company’s cash flow, profitability and overall financial health.
- Dividend vouchers or pay slips
- If you take dividends or salaried income from your company, it can be good to show these as extra proof of regular income. It is especially true if your primary income is paid through company dividends.
How much can company directors borrow for a mortgage?
The amount you can borrow will largely be determined by your verified income. Lenders usually consider a mortgage value of between 3.5x to 5x your annual earnings.
This will of course vary from lender to lender and can be influenced by other personal factors, such as having poor credit for example.
If a lender perceives you as higher risk due to your credit history, they will try to mitigate their exposure to a default. In turn, meaning they are likely to lend you less money compared to someone with a better credit history.
Different methods of working out your income can have an impact on how much you could borrow. Let’s say you take a base salary plus dividends of £50,000. Assuming the lender is working on a multiple of 5x your income, you’re looking at a maximum borrowing amount of £250,000.
However, if a specialist lender bases their calculation on your share of the net company profits, and that is perhaps £200,000 per year, then you could be looking at a maximum of £1million (5x £200k).
This is just a very basic example, and in reality, there are a range of things that will influence a lender’s decision on how much you can borrow. Things such as your deposit size, credit history, and expenses will also play a major part in a lender’s decision.
Accessing these specialist lenders can be difficult on your own, as they don’t always make themselves directly available to the general public. Therefore, it’s likely that you will need to consult the support of a mortgage broker, as they will likely have relationships with a range of different specialist lenders.
If you want to get an accurate idea of your borrowing potential, why not reach out and organise a free consultation?
Will I have to put down a bigger deposit as a company director?
The fact that you’re a company director does not in itself mean that you will need to provide a larger deposit. You should be able to access the same deals and loan-to-value (LTV) ratio offers as any other applicant. Usually, this means you can borrow up to 95% of the property’s value in normal circumstances.
There are certain circumstances you could be in where a lender may require a larger deposit. Usually these circumstances will be where the lender sees you as a riskier applicant, in turn, they will try to offset the risk by lending less against the overall value of the property.
Firstly, if you have a bad credit history this will show lenders that you have had trouble with borrowed finances in the past. By providing a larger than average deposit if you have bad credit, can help keep the interest you are charged down.
In certain cases, lenders will often increase the interest rate on bad credit applications in order to offset risk.
Another situation in which you may require a bigger deposit is if your company finances are seen as complex or higher risk due to something like company losses. As with any application, a lender will always try to mitigate their risk exposure, therefore it’s likely they will require you to put more money into your property. Therefore, if something was to happen with your business and you couldn’t make mortgage payments, a lender wouldn’t have as much money tied up in your property.
I have declared company losses, can I still get a mortgage?
Seeking to secure a mortgage after your limited company has declared a loss in the last three years can cause obstacles. This is because you will be perceived as a higher lending risk, especially by mainstream lenders.
Again, just like with bad credit, there are many specialist lenders available who may be prepared to give you a mortgage. It’s about knowing where to look, who to approach, and how to present your application effectively based on your circumstances.
Some additional things that may be required in order to ensure you have the best chance of success when applying include:
- Work with a specialist broker: Brokers experienced with self-employed, or company director mortgages can connect you with these lenders who are more willing to consider your situation, even with declared losses.
- Prepare additional documentation: Demonstrating other aspects of financial stability like personal savings, recent improvements in cash flow, or a growing client base can help support your application.
- Consider a larger deposit: As mentioned in the section above, putting down a larger deposit can offset some of the perceived risk, which can make lenders more comfortable.
- Show evidence of profit recovery: If recent performance shows a positive trend, it can reassure lenders about your ability to manage repayments.
Finding the right mortgage advice as a company director
Our team don’t only offer mortgage advice for company directors, but we also provide guidance through the application process. This is quite a niche sector within the market, and lenders’ policies can vary from one to another.
Our experience helps us find the lender who can offer the best deal for your situation, ensuring you have access to the best company director mortgage rates.
If you’d like help with a mortgage today, please call us on 0330 094 5876 or get in touch here.
Frequently asked questions...
Bad marks on your credit history can cause problems for all kinds of mortgage applicants, not just company directors. However, it is possible to get a company director mortgage even if you have bad credit.
Like with any bad credit mortgage, lenders will consider two main points:
- The severity of the adverse credit event.
- The length of time that has elapsed since it occurred.
The more severe and recent the event, then the more effect it will have on your application.
Luckily, there are many lenders who will extend mortgages to people who have had credit issues, although you may be obliged to accept a slightly higher interest rate or need to provide a bigger deposit. Some of these specialist lenders can only be accessed through a broker or intermediary. Therefore, if you want to discuss your options, get in touch today.
It’s common for directors to minimise their income tax by drawing only a small salary from the company, retaining profits within the business, and taking dividends. Unfortunately, this low income on paper may mean that a lender will think you aren’t able to afford the mortgage you need.
Most lenders, including specialist lenders, will only consider the money you have drawn from the company as your income. So, they will assess your base salary, plus dividends drawn, when looking at an affordability calculation.
There are some lenders with a broader view and understanding of your business. These lenders have the flexibility to consider your share of the company’s net profits as your income, putting you in a far stronger position when borrowing.
An SA302 is the form you receive from HMRC after filing your year-end accounts. It will detail your income from all sources and your tax liability, breaking down how your income tax and National Insurance contributions have been calculated.
If you have an accountant, the SA302 will have been printed off directly as part of their process. However, if you submitted your tax return yourself, you’ll be able to sign into your account and access the records to print your SA302.
You should note that while many lenders accept printed SA302s, some may still ask for original documents from HMRC. If they do, or you are unable to print them out for any reason, or you submit your annual tax return by post rather than online, then you will need to contact HMRC to request copies.
You can do this by calling the self-assessment helpline on 0300 200 3310 and quoting your unique taxpayer reference (UTR) and National Insurance (NI) number.
References
Gov.uk Get your SA302 tax calculation (n.d.) – https://www.gov.uk/sa302-tax-calculation
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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