Limited Company Director Mortgages
Lee and Neezam answer your questions on mortgages for Limited Company Directors.
Are there mortgages tailored to Limited Company Directors?
Limited Company Director mortgages come under the umbrella of Self-Employed mortgages. The mortgage products and deals available tend to be the same as those available for everyone, but the main difference is how the lender assesses affordability.
That’s the biggest hurdle so the key is finding the right lender to suit your business, your needs and your income. It’s probably even more vital to seek advice and guidance from an experienced broker as a Limited Company Director.
How do I prove my income as a Limited Company Director?
There are a number of different ways to prove your income and each lender varies in terms of how they assess your income and how you would need to evidence it. Typical proof, and probably the most common one is your company accounts showing your turnover, profits, your expenses and how much tax you’ve paid.
Most lenders require two to three years of accounts and some will require your self-assessments showing your particular income over the tax year from April to April. Some will just require an accountant certificate confirming your income. In terms of trading history, you typically need a minimum of twelve months if you’re a Limited Company Director.
Do dividends count as income for a mortgage?
They do, and most lenders will look at your salary and dividends if you’re a Limited Company Director. Dividends are, of course, what you pay yourself above your salary from your company’s net profits.
A few lenders would use your net profit as opposed to dividends, but dividends do count as income for the purposes of a mortgage. What they’re looking at from Self-Employed applicants is a track record and sustainability of any income they’re going to use to calculate affordability for the mortgage.
The company accounts or a tax calculation summary will provide evidence of your dividends, and depending on which lender you’re applying with, which document they will need may vary.
What if I have a fluctuating income?
Fluctuating income is quite common for Limited Company Directors. That’s why lenders like to see evidence over a longer period of time compared to if you’re employed and they only require three months payslips.
If your income is increasing year-on-year, most banks will likely take the average of the two or three years. There are some lenders that will take your latest year if you’ve had a really good year, but in most instances is an average of the two or three years submitted.
If your income is decreasing, it’s likely that most lenders will only be willing to take the latest year into account, and sadly if your latest year is the worst year they’ll have to use that. This is why you should use a Mortgage Broker, because each bank views things very differently.
What about PAYE (pay as you earn) income?
It’s quite unusual for a Limited Company Director to pay themselves on this basis. It isn’t completely unheard of, and the lender will just want to see a track record of it. What you can’t do is decide to increase your salary for three months and then reduce it after the application. The lender will look for more sustained evidence that your salary has been that way for a longer period of time. The easiest way to evidence that would be a track record of pay slips for a year or eighteen months.
What about retained Profit?
Retained profit is not commonly looked at, and the sole focus is what you actually take as an income. That’s what most leaders use as income, what you’re taking from the business.
There are some lenders that look at what you’ve left in the business as opposed to dividends. Sometimes they will use the profit before tax and sometimes it’s after tax, on top of your salary to support your mortgage application. Again, it’s something to talk with a Mortgage Broker about, because there are only a limited number of lenders that allow this.
How much can I borrow and what sort of deposit will I need as a Limited Company Director?
You need to understand how much you can borrow before you start looking for a home. How much you can borrow will depend on which lender you approach, and whether they take salary and dividends as opposed to a salary and net profit into consideration and how they’re going to calculate affordability of the mortgage.
What we’ll always do in our discovery call is talk through the different options and which lenders will potentially lend you that little bit more. That can be the difference between compromising for the next few years or buying your forever home a bit sooner. We don’t charge anything for a discovery call and we’ll answer that question, because it’s an important one.
Preparation is key, having your evidence of income documents ready and speaking with a mortgage broker as early as possible to understand what is required from you and the different ways we can use your income as a Limited Company Director.
If your bank has refused to offer you the amount you need, as we mentioned earlier, every single lender is really different and the results really do vary, so don’t just take that first no for an answer.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.