An Introduction to Limited Company Director Mortgages

Arranging Limited Company Director mortgages can be a challenge.

When company owners try to balance taking the income they need with being as tax efficient as possible, this can create restrictions when applying for a mortgage.

Making the wrong choice could result in lower loans, higher rates or even missing out on a dream home.

Fortunately there may be some options available.

What is a Limited Company Director Mortgage?

Technically, there are no specific mortgages for Company Directors. Company owners can apply for any mortgage in the same way as any other borrower. 

However, the way that each lender assesses a Company Director’s income can be vastly different. This can have a huge impact on the end result.

Another key point is that although in the eyes of HMRC they are usually treated as employed (PAYE), for mortgage purposes they are usually underwritten as self-employed. This means that they could be treated as higher risk, depending on the lender selected.

Can I get a mortgage as a Limited Company Director?

This depends on a number of factors.

These include –

• The number of years accounts you have
• Your profitability
• Your overall credit score
• Your deposit amount
• The sustainability of your business

Each lender has its own criteria on how it views these factors.

How is a mortgage calculated for directors?

This varies from lender to lender.

It’s common for Company Directors to pay themselves by way of Director’s salary plus dividends.

The standard way that many lenders assess mortgages for company directors is to use the average salary and dividend figure over a certain period of time (i.e. usually 2 – 3 years).

However, where a company director is only taking a certain amount of income from the business (usually based on need and/or trying to be tax efficient), this can restrict the loan amount made available.

There are some lenders who will consider using the business profits as opposed to dividends. Where there is a big difference between these figures, the result can also be very different.

Using a lender that considers profits instead of dividends can have a big impact on the loan amount made available. However, making sure that the loan is affordable both now and in the future should be the main priority.

How much can I borrow as a company director?

This depends on the lender as well as each person’s individual circumstances.

Firstly, there are standard factors such as –

• Credit score
• Age
• Deposit amount

When it comes to income, factors include –

• Length of trading time
• Number of year’s accounts available
• Profit / Dividends amount

In the right circumstances, there are lenders who may consider 5 times income, some may consider 5.5 times income and a few who may consider 6+ times income (especially for professionals).

The most important thing is not how much you can borrow, but how much you can afford, both now and in the future.

How much deposit will I need?

The minimum deposit for a home is usually 5%, but you will need an excellent credit rating to get a good deal.

The more you can contribute as a deposit, the wider your choice of lenders, the better the interest rates and the lower your monthly repayments. If you can contribute 20% – 25% of the property value or more, you will generally be an attractive customer to mortgage providers.

A challenge with lower percentage deposits is also the maximum loan amount made available. It’s common for lenders to have a cap for loan amounts where the deposit is lower (i.e. 5 – 10%).

What documents will I need?

Mortgage lenders need to see a variety of documents to confirm your identity, your income and your company’s trading history. While this can differ by lender, you will often need:

• Proof of ID – a valid passport and driving licence
• Your last two years’ certified company accounts
• Tax year overviews
• Three months’ personal and business bank statements
• Self assessment forms (SA302)
• Proof of deposit 

It helps to have these documents ready before starting a mortgage application.

Is it harder to get a mortgage as a director?

It can be, but this depends on the individual circumstances.

Aside from the usual challenges of arranging a mortgage, Company Directors could also face having their loan amounts restricted because of how they pay themselves.

This is where getting the right advice could make the difference.