Limited Company Director Mortgage
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Mortgages For Professionals with complex incomes through the main high street lenders
High street lenders typically provide more appealing rates, making them the preferred choice for many professionals seeking mortgage solutions. However, navigating the complexities of professional incomes can present challenges in securing loans from these lenders.
Professionals often assume they must seek alternative lenders due to the intricacies of their income streams. Yet, armed with a deep understanding of various payment structures, we confidently facilitate successful mortgage applications with high street lenders.
In fact, a substantial 93.4% of our mortgage applications are seamlessly processed through reputable high street lenders, showcasing our expertise in navigating complex income scenarios.
We understand that securing a mortgage as a limited company director can feel more complicated than for a standard employee.
In the Q&A below, you will learn about the eligibility criteria, the necessary documents, how lenders assess your income, and the key factors you need to be aware of when applying for a limited company director mortgage.
How does the mortgage process work for a limited company director?
On the face of it, the process is pretty much the same. It follows the same standard underwriting procedures as any other mortgage. The main difference is how a limited company director’s income is analysed compared to a standard employee. Everything else, such as your deposit level, ID, and property valuations, is largely the same.
Are there any specific mortgage products designed for limited company directors?
The simple answer is no. You won’t find a specific product just for limited company directors. However, there are definitely lenders that are better at handling these cases than others. There might be some fringe lenders that target these customers, but they typically have much higher rates. On the high street, you will find a mix – some lenders will be very good at dealing with limited company directors, and some will be quite awful.
Do many lenders offer mortgages to limited company directors?
It is a misconception that it is difficult to get a mortgage as a limited company director. All lenders will lend to a limited company director if you meet their criteria. The key element, however, is how much they will lend you. If you have only just set up your company, you will struggle to get help. But if you have been trading for five or ten years, you should be able to walk into any lender and get a mortgage, though the amount they will lend will vary.
What are the eligibility criteria for obtaining a mortgage as a limited company director?
The general rule is that you need to have two years of trading or income figures behind you. There are exceptions where some lenders will work off your first year’s figures, but most have relaxed the requirement to two years, down from the three years some used to ask for.
The biggest eligibility requirement is stable or increasing income. If a lender sees a decreasing income or profit trend, they will become nervous and ask why. As they are lending to you for 20 or 30 years, they need confidence that your ability to meet those payments will continue. A clean credit history is also always a good thing. Once they decide on the income to use, they will apply the same affordability models as an employed person, and you must demonstrate affordability within those calculations.
What documents are typically required when applying for a limited company director mortgage?
You will need more documents than a standard employee. As a bare minimum, you will be expected to provide one, if not two, years of tax calculations (SA302s) and your tax year overviews.
A crucial point is that the most recent tax calculation the lender uses cannot be more than 18 months old. If your tax return is not submitted by the 5th of October in any year, you will need to submit it early to get a mortgage.
You may also be required to show your limited company trading accounts. If they are used as proof of income, the same 18-month rule applies from the end of your trading year, giving you six months to produce them. Some lenders also ask for business bank statements, as well as your personal ones. Finally, if there are any unusual elements to your income, a lender may ask for an accountant’s reference, which may include a projection.
How do lenders assess the income of limited company directors for mortgage purposes?
Lenders assess your income in different ways, and the first step is to check what percentage of the company you own. If you own a small percentage, perhaps up to 20%, a lender might underwrite you as an employed person and not focus too much on the business’s performance.
However, most limited company directors own more than 20%. In this case, there are two main ways an underwriter will look at your income:
- SA302 Tax Calculations: This proves the income you have taken from the business (salary and dividends). This is the simplest approach. If you have a large mortgage application, but you did not take a high income because you did not need it, this approach won’t help you, as they only look at what you did take.
- Director’s Salary plus Share of Profit: Some lenders will look at your director’s salary within the company accounts and your share of the profit after corporation tax. They will use this method only if you have a controlling interest. This approach allows them to look at what you could have taken from the business, which is better for demonstrating a higher level of income if the business is profitable but you chose to retain the earnings.
How do lenders view dividends and retained profits when considering a mortgage application from a limited company director?
Lenders will look at both.
- Dividends: A common misconception is that lenders do not use dividend income, but they do. Taking income as a dividend is simply a tax-efficient way of getting money out of the business, and they will use it as guaranteed income. They will average it over two years and treat it the same as your director’s salary for affordability purposes.
- Retained Profits: These are profits you could have taken but didn’t. Some lenders will allow you to use a share of the retained profits to prove you could have taken more income. The complication comes if you take more than the current year’s profit, for example, drawing down on retained profits from previous years. A lender may become concerned that this pot would eventually run dry, and they would be less likely to use that income in their calculations.
Can I still get a mortgage if I have a limited trading history as a company director?
The standard is two years’ history, which will open up most of the high street to you. There are some lenders that will work off a full one year’s history.
A possible route is if you started as a sole trader or in a partnership and then incorporated to a limited company. If you are in the same line of business doing the same work, some lenders will say that, even if you only have one year of limited company history, they can consider your full trading history from the partnership or sole trader days, as the business is the same – just the format of your self-employment has changed.
Are there any advantages or disadvantages to getting a mortgage as a limited company director rather than a sole trader?
It is always advisable to get tax advice from your accountant on whether you should operate as a limited company or a sole trader.
- Advantages: You may be able to achieve potentially higher borrowing figures if the lender is willing to look at retained or undrawn profits. More lenders are also now understanding the self-employment side, and it is probably easier to get a mortgage nowadays than it was a few years ago.
- Disadvantages: You will have to provide more documents, and your income will be more complex to assess. Furthermore, if you put personal expenditure through your company (like a mobile phone bill or petrol receipts) to be tax-efficient, it reduces your company’s profit. This will, in turn, hurt your mortgage borrowing, as you can’t have a tax-efficient system while expecting the same affordability calculation an employed person would use.
Are there any restrictions or limitations on the types of properties that can be purchased with a limited company director mortgage?
No, there are generally no restrictions or limitations on the types of properties you can purchase. The only caveat is if any significant element of your business is conducted from home. Lenders are not concerned if you use a spare bedroom as a home office for paperwork. However, if you have a workshop, see patients, or run a specialised business like a riding stables from the property, that will become difficult for them to lend on. Lenders will be wary of specialist requirements for a property, as it can affect its re-sale value if they were to take possession.
Is there anything else to add about limited company director mortgages?
Limited company directors are probably the most complex cases we have to deal with, not just in terms of placing the mortgage, but getting the level of borrowing that the director would like. Any good quality broker who understands limited company directors can be an absolute godsend in these cases. You could walk into two lenders on the high street and almost be made to feel like a second-class citizen, whereas other high street lenders will welcome you with open arms and be happy to lend to you. This is why it is probably one of the most important classes of client that could benefit from using a good quality mortgage broker.
Summary
Securing a mortgage as a limited company director is often more complex than for a standard employee, primarily due to the different ways that lenders have to analyse your income. While the overall process is the same, the key is knowing which lenders are best equipped to handle your specific financial structure and history.
The complexity of these cases means that using a good quality mortgage broker who understands limited company directors can be a significant advantage. A good broker can help you navigate the varying criteria, such as how different high street lenders assess income and what documentation is required, ensuring you get the borrowing level you require.
Key Points
- The mortgage process is the same, but the income assessment is different.
- There are no specific mortgage products, but some lenders are much better at handling limited company directors than others.
- Most lenders will lend to you if you meet the criteria, but the amount they will lend varies significantly.
- The general eligibility rule is a minimum of two years of trading or income figures, with stable or increasing income being a ‘golden rule’.
- You must provide more documentation, including one or two years of tax calculations (SA302s) and potentially company trading accounts. Crucially, the most recent documents must not be more than 18 months old.
- Lenders assess your income based on what you have taken (SA302s) or, in some cases, what you could have taken (director’s salary plus share of profit), especially if you have a controlling interest.
- Dividends are generally treated the same as a director’s salary for affordability. Retained profits can be used, but drawing on them excessively may make lenders nervous.
- A limited trading history (one year) may be accepted if you can prove continuous history as a sole trader or partnership beforehand.
- A potential advantage of the limited company structure is higher borrowing if undrawn profits are used, but a disadvantage is that tax-efficient expenses reduce your assessable profit, which can hurt your borrowing capacity.
- There are no restrictions on property types unless a significant part of the property is used for business purposes (e.g., a workshop or surgery), which can complicate the lending decision.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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The second part of this Q & A delves deeper into critical questions, covering everything from using company profits to support an application and understanding the tax implications, to improving your chances of approval, and the value of working with a broker.
Can I use my limited company’s profits or assets to support my mortgage application?
Yes. Many lenders, including high street brands, will consider your share of the company’s net profits plus your salary when looking at affordability. That can significantly increase the amount you can borrow compared to using your drawn income, such as salary and dividends.
However, most high street lenders generally only consider salary and dividends. Once we get to a mortgage level of £700,000 or upwards, lenders are more adept at using salary and share of profits for affordability.
Most will average the last two years’ figures, so if you’ve had a poor year last year and now a good year, don’t assume lenders will just look at the good year. They generally average the last two.
Again, that’s not all of them. Some will take the most recent year’s figures if they think it’s sustainable, and some use post-tax company profits. One or two will actually use pre-tax company profits. I’d love to say it’s all straightforward and lenders all do it the same way, but in reality there are probably eight or nine different ways lenders can treat the same set of company figures.
So, you can use profits, but assets? Not so much.
Are there any tax implications or considerations for limited company directors obtaining a mortgage?
Obtaining the mortgage has no direct tax implications. Lenders understand the tax-efficient reasons for retaining profits in a business. Why would you want to pay more tax to the government to draw money out of your company, when you haven’t had a mortgage or expenditure at that level? Why build up a track record of drawing money out needlessly?
Lenders understand that. The key considerations are around how you draw the income out – whether you’re taking salary and dividends out or leaving retained profits in. That impacts your assessable income for the mortgage and your personal tax liability.
For Buy to Let properties, there are definite tax advantages to purchasing through a limited company, paying corporation tax instead of income tax and getting full mortgage interest relief. But it does involve a different type of mortgage.
Consulting an accountant or a tax specialist is highly recommended for tailored advice on a limited company director’s position. The tax implications aren’t necessarily on the mortgage – they’re relevant to how you get your money out of the company.
How can I improve my chances of getting approved for a mortgage as a limited company director?
First, ensure you’ve got a clean financial record personally, as well as on the business side. Avoid any history of late payments if possible.
Make sure you’ve got, ideally, the last two years of finalised company accounts and also your last two years’ SA302 or tax calculation summaries. You also need your tax year overviews, and the last few months’ personal bank statements.
You need to show stability, with a consistent or growing income stream. That helps us provide a good rationale for what you’re looking to do and, if necessary, explain any recent profit growth or a drop in profits.
Perhaps you did a big marketing push that will affect the accounts next year, for example. If the profits are consistent and stable, great, no rationale is required. That stability is key for lenders.
You also need to maximise your assessable income. That could mean timing the application strategically, perhaps following one or two strong financial years. Obviously, we suggest you work with a broker. We’ll find lenders that use the right method to calculate your income, to increase your borrowing capacity.
Lenders price mortgages according to their perception of their risk. Putting in more deposit towards a purchase will give you better rates and potentially more relaxed underwriting.
What is the typical interest rate and repayment term for limited company director mortgages?
Interest rates and terms are generally the same as those for any other borrower. Lenders don’t penalise you, or offer preferential rates to limited company directors, provided you meet their criteria.
To get better rates, have as much deposit as you can and keep your credit history as clean as it can be.
Repayment terms are largely linked to the ages of the people applying. We see repayment terms of up to 40 years now, although it varies. The general advice is to pay off any credit commitment as quickly as you can safely afford to.
There’s more to life than paying your mortgage payment, but equally you don’t want to hand lots of interest to the bank.
For limited company Buy to Let mortgages, rates tend to be slightly higher than for an individual buying a property as a Buy to Let investment. That’s simply because there are fewer lenders for limited companies, and with less competition they can get away with higher rates and margins.
The rates change day-by-day, even hour-by-hour at times. So just contact us and we can give you the latest figures.
Can I use a limited company director mortgage to purchase a Buy to Let property?
Yes. The key thing for Buy to Let mortgages is that lenders look primarily at the property itself.
They’ll want to value the property you’re looking at, to confirm what they think the market rental is. The value of the property and the rent are what drive the Buy to Let mortgage you can secure. That’s true whether you’re a limited company director, you’re employed or self-employed.
If you want to use your normal trading limited company to purchase a Buy to Let property, certain lenders allow that. Again, they primarily look at the property value and rental income. However, to buy property in a limited company name, most lenders want that company to have been specifically set up as a ‘special purpose vehicle’ (SPV) with specific SIC codes.
How does being a guarantor for another person’s mortgage affect my own eligibility as a limited company director?
There’s no difference at all. As with any type of liability, if you’ve signed a formal guarantee you become legally responsible for the debt. If the primary borrower defaults, the lenders can look to you for the full amount outstanding, be that a mortgage, an unsecured car loan or whatever else you’ve guaranteed.
If you’ve given a guarantee for someone’s mortgage and you then want to buy a property yourself, lenders will look at the liability should the mortgage in the background go wrong.
If the payments on that mortgage in the background are £1,000 a month, some lenders will factor that £1,000 into how much you could borrow on your next property.
Can I remortgage a property as a limited company director? What are the potential benefits?
Yes, you can remortgage a property as a limited company director. There’s no difference to any other type of remortgage. The benefits of remortgaging could be to extend the term or reduce the costs, depending on how competitive your existing lender is.
The most common reason why we look at remortgages is to save clients money on borrowing costs – there are no implications for a limited company director there.
What happens to the limited company if I’m unable to make mortgage payments on time?
For a personal mortgage, even where your company income was used to support the application, the mortgage is in your personal name. It’s completely separate from your limited company’s finances.
Any missed payments will impact your personal credit history, but not directly affect the company’s standing. Your personal assets – including your home – are at risk of repossession by the lender in a worst-case scenario.
As a limited company director, perhaps you might see your bank manager to get a big overdraft facility for the limited company. They might agree on the condition that you give a personal guarantee. They then do a credit search on you personally. If they see that you have missed mortgage payments on your main residence, that will almost certainly impact them lending you money as the controller of a limited company.
Can I transfer an existing mortgage held personally to a limited company if I become a company director?
No, you generally cannot simply transfer an existing personal mortgage to a limited company. The company effectively has to buy the property from you, at market value. That requires the company to secure a new, separate limited company Buy to Let mortgage to pay off your personal one.
That transaction is treated as a full sale and purchase by HMRC and would trigger potential stamp duty land tax, and potentially capital gains tax. You can do it, but make sure you take proper tax and legal advice and give it careful consideration.
Are there any additional costs or fees with a mortgage as a limited company director?
No, there won’t be any additional costs for a personal mortgage just because you’re a limited company director. You’ll face normal mortgage product fees, perhaps a valuation fee and legal costs to set up the mortgage.
For specific limited company Buy to Let mortgages, you might encounter slightly higher arrangement fees, and potentially higher interest rates compared to personal Buy to Let.
How can a broker help with limited company director mortgages?
A broker like ourselves is invaluable, because we understand the complex and varying lending criteria for company directors across the industry.
We know which lenders can use retained profits or the latest year’s accounts to maximise your borrowing. We also help applicants gather and present the necessary documentation in the best way for the lenders.
We sometimes get access to exclusive deals that are not available directly to the public. Finally, we provide expert guidance on navigating the complexities of mortgages, saving our clients time and reducing the stress involved.
Summary
Limited company directors have many options for obtaining a mortgage, but the process often involves lenders who can look beyond drawn income like salary and dividends. They can often consider your share of the company’s net profits, which can significantly increase your borrowing capacity. For a personal mortgage, the key is preparation: having two years of clean company accounts, a good personal credit history, and a clear rationale for any profit changes. While there are no inherent additional costs for a personal mortgage, tax implications are crucial and depend on how you draw your income. For Buy to Let purchases, specific limited company products exist, often requiring the company to be a Special Purpose Vehicle (SPV), and rates can be slightly higher. Ultimately, working with a mortgage broker is highly recommended to navigate the varying lender criteria and maximise your chances of approval.
Key Points
- The mortgage process is the same, but the income assessment is different.
- There are no specific mortgage products, but some lenders are much better at handling limited company directors than others.
- Most lenders will lend to you if you meet the criteria, but the amount they will lend varies significantly.
- The general eligibility rule is a minimum of two years of trading or income figures, with stable or increasing income being a ‘golden rule’.
- You must provide more documentation, including one or two years of tax calculations (SA302s) and potentially company trading accounts. Crucially, the most recent documents must not be more than 18 months old.
- Lenders assess your income based on what you have taken (SA302s) or, in some cases, what you could have taken (director’s salary plus share of profit), especially if you have a controlling interest.
- Dividends are generally treated the same as a director’s salary for affordability. Retained profits can be used, but drawing on them excessively may make lenders nervous.
- A limited trading history (one year) may be accepted if you can prove continuous history as a sole trader or partnership beforehand.
- A potential advantage of the limited company structure is higher borrowing if undrawn profits are used, but a disadvantage is that tax-efficient expenses reduce your assessable profit, which can hurt your borrowing capacity.
- There are no restrictions on property types unless a significant part of the property is used for business purposes (e.g., a workshop or surgery), which can complicate the lending decision.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
For specialist tax advice, please refer to an accountant or tax specialist.