How to get a mortgage as a limited company director

In the past, directors of limited companies found it more challenging to secure competitive mortgages than traditional employees.

These days, however, many mortgage providers are keen to lend to business owners.

In this guide, we look at how the mortgage process works for limited company directors, what to look out for, and how to secure the best rates.

Can you get a mortgage as a company director?

Yes, absolutely. There are plenty of mortgage products available to limited company directors, although the way lenders assess your income varies considerably.

Some lenders will assess directors using salary and dividends, while others may take account of your share of company profits. This can make a significant difference if you deliberately leave profits in your company rather than withdrawing everything as dividends.

Mortgages at up to 95% of the property’s LTV (Loan-to-Value) are available in the wider market, although eligibility depends on the lender, your income, credit history and other circumstances. The most favourable rates are generally available with larger deposits.

Proving your income if you are a company director

If you apply for a mortgage as a traditional employee, lenders can easily use your salary when assessing how much you can borrow.

This isn’t so easy when it comes to directors’ earnings.

Here are some classic scenarios:

• Your salary and dividends may not truly represent the earnings your limited company has generated.
• You may not withdraw all of your retained profits; instead, you may elect to leave funds in the company.
• Perhaps you co-own the business with your spouse, who will be a co-applicant for a mortgage.
• Your annual profits over the past 3 years may vary considerably. Lenders have different approaches to fluctuating income and may average previous years or take a more cautious view.
• If you have been trading for less than 3 years, your choice of lenders may be more limited.

What other criteria will affect your mortgage offer?

Alongside your income, the following factors will also affect the amount you can borrow:

• Your credit history. Use a free service like Credit Karma to review your credit file. CCJs, defaults and other adverse credit can affect your ability to borrow and the products available to you.
• Other outstanding debt.
• If you have dependants.
• Your age.
• The mortgage term.
• The type of product you take out (fixed rate, variable, etc.).
• The interest rate.
• The size of your deposit.

How much can you borrow?

Income multiples of around 4.5 to 5 times earnings are often used as a starting point, but the actual amount you can borrow depends on the lender’s affordability assessment and your individual circumstances.

Ideally, you should consider lenders who understand limited company directors and the different ways they extract income from their businesses.

For example, some lenders may assess you using salary and dividends, while others may consider your salary plus your share of company profits. The latter can be particularly useful if you retain a significant amount of profit in your company.

If you’re a limited company contractor, some specialist lenders may also use your contract rate when assessing income. A typical calculation might look like this:

(Day rate (£) x 5 days a week x 48 weeks per year) x income multiple

For example, using a £500 day rate and a 4.5 multiple gives an illustrative figure of £540,000:

£500 x 5 x 48 x 4.5 = £540,000

This is an illustration only. The calculation used, income multiple and maximum mortgage available depend on the individual lender and its affordability checks.

What if my company hasn’t been trading for 3 years or more?

In the past, many lenders were reluctant to lend unless your company had been active for 3 or more years.

This is no longer always the case, although it will generally be easier to demonstrate a track record of your earnings if you have several years of final accounts.

There is often a delay between a company’s year-end and the date on which the final accounts are signed off and submitted to HMRC and Companies House.

With this in mind, you could have been actively trading for over 2 years, but only have one set of signed accounts for year one.

Some lenders will consider applicants with a shorter trading history, so this is an area where a broker who understands limited company directors can be useful.

What information do you need to start the mortgage application process as a director?

Although the paperwork requirements vary between lenders, you may be asked for the following:

• Recent personal bank statements for each applicant.
• Your limited company’s signed annual accounts, often covering the last 2 or 3 years where available.
• Your SA302 tax calculation and Tax Year Overview for the years requested by the lender.
• Details of any outstanding borrowing you have (e.g. loans, other mortgages, credit cards).
• Proof of your deposit.
• Proof of ID.
• Proof of residential address.
• Additional information or a reference from your accountant, if required by the lender.

You can obtain an SA302 for the last four tax years. If you file your return using HMRC’s online service, you can print your tax calculation and Tax Year Overview from your HMRC account. If you or your accountant use commercial software, the tax calculation can be printed from that software and the Tax Year Overview from your HMRC account.

Always check exactly what your lender requires before applying.

Things to do before you apply

1. Consider lenders who are well-versed in helping limited company owners.
2. Read up on the different types of mortgage and repayment terms that are available.
3. Check your credit files and correct any errors before applying.
4. Reduce any outstanding debts, where possible.
5. Build the largest deposit you comfortably can – lower LTV mortgages will generally offer a wider choice of products and better rates.
6. Make sure your ID is current (e.g. your passport or driving licence hasn’t expired).
7. Make sure your latest year-end accounts have been prepared and are available.
8. Have the required paperwork ready before starting the application process.

Use a limited company specialist mortgage adviser

We have worked with Broadbench, a company director specialist, for many years.

If you’d like more information on how to apply for a mortgage, get quotes, or anything else, visit our sister site, IT Contracting, for more mortgage guides, a contact form, and mortgage calculators.

Your home may be repossessed if you do not keep up repayments on your mortgage.