Mortgages For Company Directors
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Mortgages for Directors
Despite what you might think from looking along the high street, you can indeed as a company director find lenders who are confident and willing to offer you a mortgage on reasonable terms. Typically, these will be smaller, specialist lenders, who can offer more flexibility when it comes to assessing a company director’s income, but just like all lenders, they will each have their own criteria for calculating a mortgage’s affordability and looking at your profits and assets when deciding how much you can borrow.
Aside from some professions (such as doctors and others who can show a contract as evidence of ongoing and future income), most lenders will expect your company to have been trading for at least a whole year before you apply for a mortgage. They will require you to provide at least one year’s worth of company accounts certified by a chartered accountant, and will often request up to three years. If your tax year does not match the usual HMRC April-April template, they may well be willing to consider a snapshot of the last 12-month trading period rather than making you wait until the end of the current tax year before applying for a mortgage.
Company Director Information
How much can company directors borrow?
The amount you can borrow will be largely determined by your verified income, with lenders usually considering a mortgage value of between 3.5x to 5x your annual earnings. This will vary from lender to lender and can be influenced by other factors, such as a poor credit history, so if they perceive you to be a higher risk, they will try to mitigate their exposure to a default.
Different methods of working out your income can have a significant impact on the amount that you will be able to borrow. Let’s assume you take a base salary plus dividends of £50,000–assuming the lender is working on a multiple of 5 x your income, you could be looking at a maximum borrowing amount for your mortgage of £250,000. If, however, a specialist lender bases their calculation on your share of the net company profits, and that is perhaps £200,000 PA, then you could be looking at being able to borrow a maximum of £1million (5x £200k).
Company directors mortgages using latest year's accounts
Your company accounts could be showing a marked improvement for the current year than previous performance for a number of reasons–growth after the initial start-up, market expansion, acquisitions or mergers, or a run of successful tenders, etc.–placing you in a stronger financial position. 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.
Mortgages for company directors with bad credit
Bad marks on your credit history can cause problems for all kinds of mortgage applicants, not just company directors. Lenders will take into account the severity of the adverse credit event, as well as the length of time that has elapsed since it occurred, and there are lenders who are more open-minded and flexible about extending mortgages to people who have had issues such as late payments, debt management plans, defaults, IVAs, CCJs and bankruptcy. However, you may be obliged to accept a slightly higher interest rate, or need to provide a bigger deposit.
I have declared company losses–can I still get a mortgage?
As with applicants with a bad credit score, a company director seeking to secure a mortgage after their limited company has declared a loss in the last three years will face obstacles from most if not all of the mainstream lenders, as they will be perceived as a higher lending risk than those with stable businesses, with a greater probability of a default. Again, there are many specialist lenders on the market who may be prepared to offer a mortgage in these circumstances, if it can be shown that your company has since recovered.
Mortgage lenders for company directors
The criteria for a mortgage offer and the policies on income requirements can vary greatly from lender to lender, but mortgages for limited company directors are not necessarily hard to find or secure, and applicants who have been declined by mainstream banks and building societies can usually find help from specialist lenders.
If your company has only been trading for a short period of time, or you don’t know what may be classified as income for the purposes of a mortgage calculation, feel free to complete the enquiry form or call one of our team for further information and assistance.
Company directors mortgage advice
The team at The Mortgage Centres have a huge amount of experience of handling mortgage applications for limited company directors. This can be quite a niche sector within the market, and lenders’ policies towards limited company directors can vary from one to another, but our familiarity with the market means we will know which particular lender will be able to offer the best deal to suit your individual circumstances. If you’d like help with a mortgage today, please call us on 0330 094 5876, or use our online contact form.
Frequently asked questions...
- Will I have to put down a bigger company deposit as a company director?
- What income do lenders use for company directors?
- How do I prove my income as a company director?
- How do I get a copy of my SA302?
The fact that you are a company director does not in itself mean that you will need to provide a larger deposit–once your income is verified, 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, with larger deposits being asked for in cases of individuals with a poor credit history, or if you want to access a more favourable interest rate.
Lenders with more flexible assessment and lending criteria may also ask for a larger deposit on the mortgage, as limiting the loan-to-value to perhaps 75%–85% will offset somewhat their perceived exposure to risk compared to more standard mortgage lending. The size of the loan will also affect the level of deposit required by all lenders, large or small–restricting the LTV ratio on a mortgage of perhaps over £800,000 helps them to reduce their risk.
This is the key factor that differentiates mortgage applications made by people in conventional employment and those made by company directors. It’s common for company directors, on the advice of their accountant, to minimise their income tax exposure by drawing only a small salary from the company, retaining profits within the business and taking dividends. Unfortunately, while good for avoiding tax, this low income on paper may mean that a lender will think you are not able to afford the mortgage that you need.
Specialist lenders are familiar with company directors’ income structures, and understand that a basic salary is not an accurate indicator of the company’s profitability or the director’s actual level of assets or income. This said, the way ‘income’ is measured by lenders in their affordability assessments will vary from provider to provider, and so will the amount they are willing to lend.
Most lenders, including specialist lenders, will only take into account the money you have drawn from the company as your income, and so will consider your base salary plus dividends drawn when looking at an affordability calculation. But there are some lenders with a broader view and understanding of your business who will have the flexibility to consider your share of the company’s net profits as your income, which could put you in a far stronger position and make larger mortgages available. We’ll illustrate this in the next section.
Most mortgage lenders will require you to show at least one year’s full company accounts, certified by a chartered or certified accountant, and possibly also your SA302 form from HMRC (although there is an increasing trend for some lenders to simply request the forms in some circumstances, for the sake of speed and simplicity).
Many lenders may request accounts from a period of two or three years, in order to build up more of a complete picture of your past, current and projected revenue and income. They may also ask to see your personal and business bank statements for the same periods to further verify your income.
If a lender does consider more than one year’s financial figures, they will then be working out your income figure based on an average of your earnings across all the tax years in review, rather than just your current year. If your business has flourished and grown in the last year, this can be frustrating, but many specialist lenders will take into account the trends shown in your most recent year’s results.
An SA302 (sometimes simply referred to as your tax calculation) is the form you receive from HMRC after filing your year end accounts, detailing 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, then they will most likely have submitted your return using online software and the SA302 will have been printed off directly as part of their process. If you submitted your tax return yourself via the online HMRC Self Assessment portal, you will be able to sign into your account, access these records and print off SA302 forms, and corresponding tax year reviews, from up to the last four years.
You should note that while over 50 lenders accept SA302s that have been printed out either by you or your accountant via the online portal or commercial software, some may still ask for original documents from the HMRC. If they do request originals, 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 to be sent to you. You can do this by calling the Self Assessment helpline on 0300 200 3310 and quoting your Unique Taxpayer Reference (UTR) and N.I. number. Or you could write to: Self Assessment, HM Revenue and Customs, BX9 1AS. You should allow up to two weeks for the documents to arrive.