How much can I borrow as a Company Director?

Arranging a mortgage as a Company Director can be challenging, especially when it comes to affordability.

Being a Business Owner doesn’t necessarily mean that you won’t get a mortgage. However, you may find that what you are offered differs widely depending on who you speak to.

You may find that you are offered a much lower loan than you need based on your income. This can be frustrating, especially when you know that you can comfortably afford the monthly payments.

So how is affordability actually calculated and how much can you borrow as a Company Director?

Company Directors – Income and Affordability

There isn’t actually any such thing as a ‘Company Director Mortgage’. For affordability purposes, Business Owners are treated the same as anybody else.

However, what can make a huge difference for Business Owners is –

• What income the lender takes into account
• The affordability model based on this income

What Income is Used for Company Director Mortgages?

It’s common Company Directors pay themselves by way of Director’s salary and dividends. It’s also common for many mortgage lenders to use this exact same income when assessing affordability.

If this is sufficient, you should have access to more mortgage options.

However, a common problem is that many Business Owners take less dividends than they are entitled to.

This is usually because –

1. They don’t need the income
2. Taking it would incur an unnecessary tax bill

This means that although they could access funds which make the mortgage they need comfortably affordable, they could be restricted because the lender is only considering dividends.

Sometimes, this can lead to Business Owners considering taking dividends they don’t need in order to get the mortgage they want.

However, there are some lenders who may consider profits rather than dividends.

This is where you could see a huge difference, depending on who you speak with.

Using Profits Instead of Dividends

Lenders who consider profit instead of dividends can view things in a number of ways.

For example –

• Some consider profit before tax, some after
• Some take an average of the last 3 years, some 2 years and some consider the latest year
• Some may consider your share of profit, whereas others need the household to own 100% of the business to consider this approach.

The point is that even if you find a lender that considers profit, the result can still differ widely depending on who you speak with.

However, in short, if your profits far exceed the dividends you take, it might be possible to achieve a higher loan.

However, remember that just because you can, it doesn’t mean that you should. The mortgage needs to be comfortably affordable both now and in the future and your income needs to be sustainable.

What other income could be considered?

Lenders may also consider other forms of income for Company Directors.

These could include –

• Rental income from investment properties
• Investment income (even from investments not being drawn down)
• Pension income for over 55s (even from pensions not being drawn down)
• Employer pension contributions for Directors

Again, this will depend on the lender and is on a case by case basis.

Can I borrow 5 X my income?

Income multiples used to be a standard way for mortgage lenders to calculate how much you could borrow.

Nowadays, they are treated as a tool that indicates the maximum they will consider (i.e. up to 5 X).

Affordability is based on a case by case basis and everybody’s circumstances are different.

Factors that affect affordability could include –

• Your age / planned retirement age
• The term you wish to pay the mortgage over
• How many financial dependents you have
• Childcare and/or Private School Fees
• Your debt
• Your household expenditure
• Your credit status

However, it may be possible to borrow up to a maximum of 5 – 5.5X your allowable income with some lenders, but this will depend on the above factors.

Again and more importantly, just because you can, it doesn’t mean that you should. The mortgage needs to be comfortably affordable both now and in the future and your income needs to be sustainable.