Company Director Mortgages

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Company Director Mortgages

  • ‘Common Sense’ Underwriting
  • 95% Mortgages Available
  • Free Initial No Obligation Advice
  • Only 1 Year Accounts Required
  • 5 * service
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Author: Carl Shave - CEO and co-founder
Last updated: May 20th, 2022

Mortgage for Directors

If you run your business as a limited company, it can be difficult to know where to start looking when you want a mortgage. The lending criteria implemented by many of the more mainstream lenders is not particularly geared towards self-employed applicants, and even less so when it comes to the more complex finances of limited company directors – it is a particular irony that sometimes company directors find it more difficult to get a mortgage than the employees whose salaries they pay!

Mortgages for company directors

Be assured that there absolutely are lenders out there who offer mortgages to limited company directors. A few of the big high-street names are moving in the right direction with regard to this type of lending, but it is typically in the smaller, more niche corners of the lending market that you will find the most flexibility in assessing directors’ income. When you start looking for a mortgage, however, it is important to bear in mind that application criteria can vary quite considerably between different lenders, with regard to factors such as how they will calculate your income figure for the purposes of affordability assessment and working out how much you can borrow.

As a general rule, lenders will expect your company to have been trading for at least a year before you apply for a mortgage. Some lenders may make exceptions for certain professionals (such as doctors) who have been operating as a limited company for less than a year, but this would normally only be considered where a contract can be used as evidence of ongoing and future income.

Lenders will typically want to see your company accounts covering at least one full tax year. It is not uncommon to be asked to provide more than that – two or three years’ worth. In some cases – where your company’s accounting year does not run April to April and therefore your first tax return doesn’t cover a full trading year – lenders may be willing to look at a 12-month “snapshot” of your accounts rather than making you wait until the next tax year end before applying.

Being a company director in and of itself does not mean that you will have to put down a larger deposit. In theory, you should have access to mortgage deals with the same maximum loan-to-value (LTV) ratios as any other borrower – typically up to 95% lending in straightforward scenarios, with a larger deposit typically required only in cases with an adverse credit history, or to gain access to more attractively priced mortgage products.

Some more specialist lenders with more flexible lending and assessment criteria may require a larger deposit to be put down; limiting the maximum LTV to, for example, 85% allows them to offset the increased exposure to risk in comparison to more standard mortgage lending. Be aware that it is also common for lenders of all sizes to require larger deposits on larger loan amounts, for example mortgages over £750,000 or £1 million; again, restricting the LTV on large loans allows the lender to mitigate the increased risk.

This is the area in which borrowing as a company director perhaps differs most from a mortgage applicant in salaried employment. As a director you are likely to have taken advice from your accountant aimed at maximising tax efficiency – for example retaining profits within the company structure, and splitting money drawn from the company between salary and dividends. Unfortunately, this can be detrimental to your borrowing ability with how many lenders assess your income and in turn affordability.

Lenders with experience in providing mortgages to company directors understand that a company director’s base salary provides an incomplete picture of how profitable that company is. That said, different lenders still vary in how they will calculate your “income”, and this can affect both their affordability assessments and how much you will be allowed to borrow.

The majority of lenders, and particularly more mainstream lenders, will consider only money that you have drawn from the company to be your income. Therefore, most lenders when assessing a mortgage application by a company director will take account of the salary drawn from the company, plus dividends drawn. However, there are some specialist lenders who will instead consider your share of the company’s net profits as your income – this can make a considerable difference in affordability calculation and the maximum loan amount, as we illustrate below.

Lenders usually base the maximum total borrowing on a multiple of your verified income. Income multiples fall broadly in the range of about 3.5 to 5 times income. The exact figure will vary from one lender to the next, and can also vary depending on circumstances – for example, past credit problems may mean a lender will apply a lower multiple, reducing exposure to risk by limiting the lending amount.

Here is an example of how the different methods of working out your income can significantly affect the amount you might be able to borrow. Let us say your share of the company’s net profits are £250,000, but you only draw salary and dividends totalling £50,000. If we assume an income multiplier of 5, then a lender basing your income figure on salary plus dividends would lend a maximum of 5 x £50,000, i.e. £250,000. A specialist lender basing their income figure on share of net profits, on the other hand, would lend a maximum of 5 x £250,000, i.e. £1.25 million.

Most lenders will ask you to provide full, finalised accounts and/or SA302 year-end tax calculations from HMRC (usually with the corresponding tax year overview). Lenders will usually need your accounts or SA302 covering at least one full tax year, and it is common to ask for two or three year’s worth of accounts or SA302s to build up a full picture of your past, current and likely future income.

Lenders will typically require your accounts to be certified by a qualified accountant. They may also ask for copies of you business and/or personal bank account statements – usually the past three months’ worth – as further verification of your income.

If a lender asks for more than one year’s accounts to verify income, be aware that most will take an average to work out your income figure, rather than the most recent year’s. This can be frustrating if your business has built over the period concerned; however, some more specialist lenders do base their income figures on the most recent year’s results.

There are many situations where an individual’s accounts have produced a better result in the last year, be it from market expansion, growth after an initial start-up, acquisitions/mergers or successful tendering etc.  If it can be confirmed that the current level of profit is sustainable and not just a “one off”, there are a number of lenders who will consider an application based on this income rather than an average.

An SA302 calculation is your year-end tax calculation, provided by HM Revenue & Customs. It shows your declared income from all sources, and breaks down how your income tax and National Insurance contributions are calculated. If you have an accountant, they most likely submit your annual tax return using commercial accounting software, and the SA302, or sometimes referred to as your tax calculation, can be printed off directly.

If you submit your tax return yourself using the HMRC Self Assessment online portal, you can sign into your account and print off up to four years’ worth of SA302s and corresponding tax year overviews. Please be aware that while many lenders (over 50) accept SA302s printed out via the online portal or commercial software, some may ask for HMRC originals.

If the lender asks for original SA302s, if you do not have access to a printer, or if you submit your yearly tax return by post, then you will have to request the documents from HMRC. You can do this by telephone via the Self Assessment helpline on 0300 200 3310, quoting your National Insurance number and Unique Taxpayer Reference (UTR). Alternatively, you can write to: Self Assessment, HM Revenue and Customs, BX9 1AS. Allow up to two weeks for the documents to arrive.

With the requirements and criteria for mortgage applications varying to the greatest extent between lenders when it comes to limited company directors, prospective borrowers would be well-advised to seek guidance and help from a specialist mortgage broker in order to ensure they are looking in the right place for the most favourable deal. You’ll need to speak to the right broker with the appropriate level of experience and in-depth knowledge of the mortgage market to be certain that your options are not being restricted and that you are being recommended exactly the right product to meet your needs and circumstances.

A specialist broker will be intimately familiar with the criteria, preferences and processes used by mortgage lenders across the market, from the mainstream high street banks to the wide range of smaller specialist lending companies in the UK. Once they have taken a close look at your circumstances and understood your aims, resources and requirements, they will know exactly which lenders will be most suitable to approach, which products you should look at and what you need to do to ensure they consider your application in the best light. They will have access to a range of deals that are not visible on the open market, and can often approach lenders informally prior to an application to sound out how flexible they can be in your particular circumstances.

At Just Mortgage Brokers we have years of experience in helping limited company directors get mortgages. We understand that this can be quite a complex, niche segment of the mortgage market, and that lenders’ attitudes and policies can differ greatly from one to the next. With access to around 12,000 mortgage products via more than 90 lenders at our disposal, we can help you find the lender and the mortgage deal that best match your unique circumstances. Call us today on 0800 114 3753, or use our online contact form to discuss how we can help.

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