Posted 29 Jun 2019
Getting a mortgage as a company director
If you are the director of a limited company, a lender will assess your income based on the monthly salary that you draw from your business. The lender will consider this salary alongside dividends, shares and bonuses when making an estimation of how much you could potentially borrow and afford to pay back.
It is common for a director to take a base salary up to the tax-free threshold and to then draw dividends for any additional income. If you operate a limited company, much of your profit will therefore be left in your business due to future business expansion plans and so on. Leaving more profit in your company also means paying less tax. Unfortunately though, taking a small salary on paper means that it becomes difficult to secure a mortgage based on what you earn. For instance, if your business made £100,000 profit in a year but you only took £12,000 per year as a salary, a high street lender will typically assess your application for a mortgage based on your annual salary rather than the profits made by your business.
I have retained profit in a limited company – can I still get a mortgage?
Yes, you can still get a mortgage, but it is most likely that this mortgage deal will be from a specialist lender for company directors rather than a high street institution. Specialist lenders will consider all profits retained in a business, and could offer you between three or five times more than your business profits in terms of borrowing potential. Although this will depend on things like your credit rating, whether you have other mortgages and how well you make your repayments, and the deposit amount you put down on a property.
Proof of income for a company director mortgage
Lenders will ask for the following documents when you apply for a company director mortgage:
- SA302 self-assessment documents (from HMRC)
- Accounts covering all expenses, profits and tax paid – these can be from yourself or a chartered accountant
- At least 3 months’ worth of bank statements for both your business and personal accounts
I’m a company director with a poor credit rating – can I still get a mortgage?
If you have a bad credit rating, as a company director you may find that the number of lenders available to you is even more limited. A lender will need to assess how much of a ‘risk’ you are to them depending on the severity of your poor credit situation. If you are considered a great risk and your application is declined, you may need to consult a broker who specialises in mortgages for those with bad credit.
My company has made a loss – will my mortgage application be declined?
If your company has unfortunately suffered a loss within the last three years, then you may struggle to find a mortgage lender to accept your application, as the loss will make the lender doubt whether the loan could be fully repaid. That said, it isn’t impossible. If, for instance, you have suffered a loss in the first three years of your business starting, but you have made a profit since then, a lender may still consider you. You might have to consult a specialist broker who deals with high risk applicants.
If you are a company director and require advice on finding a mortgage deal that suits your needs, contact our expert team at iam mortgages. Tell us about your circumstances and what you need from your mortgage and we will put you in touch with specialist lenders that fit your requirements.