Mortgages for Limited Company Directors: What You Need to Know

7 min
Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

As the director of a limited company, most mortgage lenders consider you self-employed. Does this make you ineligible to get a mortgage? The answer is no. However, you will encounter some extra challenges when you apply for a mortgage as a limited company director.

But do not panic. If you provide the correct information, you can apply for a mortgage and have an equal chance of being approved after a mortgage review. 

At the end of this article, you will understand the essential requirements for obtaining a mortgage as a limited company director, why it may be difficult to get one, and more. So read on. 

Reasons Why a Director of a Limited Company May Have Difficulty Getting a Mortgage

Most mortgage lenders consider limited company directors self-employed applicants. This means that some lenders, for several reasons, will be less likely to give you a mortgage as a director of a limited company.

One reason is their caution about how reliable your future income is. Directors are often advised to take their earnings as dividends instead of Pay As You Earn (PAYE). This is because PAYE implies that your earnings depend totally on the company’s performance, which can fluctuate, making them unreliable.

Also, if your company keeps retained profits instead of paying dividends, you may find getting a mortgage as a director difficult. The reason is that retained profits are not counted as part of your income. 

Furthermore, you need to have been trading for a long time with enough accounts. Otherwise, it will be challenging to get a mortgage.

Factors like these make your income more complex than those employed, and an average mortgage lender dislikes complex income. This is because it takes them more time to process, comprehend, and determine your affordability. Hence, they prefer and favour non-complex mortgage applications.

If you fall under the “complex income” category, you stand a better chance of getting a mortgage by working with a specialist lender. Specialist lenders are more flexible and willing to invest time to understand your income. They also operate with less strict lending criteria.

Mortgage Lending Criteria for Limited Company Directors

As a limited company director, you can still apply for a mortgage and have an equal chance of being approved after a mortgage review. However, this is only possible if you can provide the correct information. 

Below are the typical eligibility requirements to help you understand the information you need to provide as part of your mortgage application:

#1. Trading History

As a limited company director, your trading history is important in the success of your mortgage application. Most mortgage lenders would only consider the application of a limited company director if the business has been in operation for at least one year.

Certain professions are exempt, such as doctors. They are viewed as less risky and do not always require a minimum trading history to demonstrate their future income. Ideally, you need to provide two years of full accounts. 

Let’s take a look at the different trading histories and the possibility of securing a mortgage:

  • Trading history of less than one year: It is usually difficult to secure a mortgage with less than one year of trading experience, it is usually difficult to secure a mortgage. However, it would be easier if you had an ongoing or future contract that guaranteed income for the next 12 months.
  • 1-2 years trading history: A limited company director with 1-2 years of trading experience will have one full set of accounts. While many lenders require two years of financial records, some mortgage providers accept one full year of account and income history. However, this is less common.
  • Trading history of two or more years: If you are a limited company director with a trading and accounting history of two or more years, many lenders are more likely to consider your application.

In other words, the more tax returns, records, and financial statements you have, the more robust your application will be. This will also make it easier for mortgage lenders to complete their lending assessments.

#2. Proof of Income

One of the most challenging requirements when applying for any self-employed mortgage is proving your income. Though each lender may have varying requirements, below are the three documents you will typically need to submit as proof of your income:

  • An SA302 form – a summary of your income as reported to HM Revenue and Customs (HMRC) 
  • Three months of both personal and business bank statements
  • 1-3 years accounts, certified by an accountant

Note: Lenders do not often consider retained profit as part of earnings. This is why they usually prefer dividends as a measure of income instead.

#3. Deposit 

Every applicant’s situation is unique and assessed individually. However, the general advice for deposits is that you should have 10-15% of the total price of the property for which your mortgage is for. Some mortgages require a 5% down payment, but the larger the down payment, the better.

Increasing the deposit amount lowers the Loan-to-Value (LTV) — the borrowing amount compared to the property’s value. And your chances of being granted a limited company director mortgage are higher with a lower LTV.

Furthermore, as a limited company director, a few other factors can affect your down payment amount. These include your credit history and the length of time your limited company has been trading. 

Credit history issues like County Court Judgements (CCJs), bankruptcy, missed payments, late payments, etc., can raise red flags. As a result, lenders may only agree to approve your mortgage if you make a larger deposit. On the other hand, if your company has been in business for a long period, it can allow for a lower deposit.

#4. Credit Score

A credit score is a number that shows how good a person’s past credit history has been. A high credit score is an indication of a good credit history, for instance, paying credit back on time. On the other hand, low scores indicate credit issues, such as missing payments in the past.

There are two ways to obtain your credit score. One is from the mortgage lender you are applying to. The other is from credit referencing agencies like Experian, Equifax, and TransUnion. Both calculate your credit score from your credit report. 

Your credit score is independent of your limited company but depends on your personal credit history. It considers different financial factors, such as your number of open accounts, repayment history, total debts, and assets.

A credit score usually appears in any of these five forms — Excellent, Good, Fair, Poor, or Very poor. Here is how the three major credit reference agencies in the UK classify their scores:

Equifax TransUnion Experian
     Excellent      466-700      628-710      961-999
     Good      420-465      604-627      881-960
     Fair      380-419      566-603      721-880
     Poor      280-379      561-565      561-720
     Very Poor      0-279      0-550      0-561

Note: lenders usually have their standards for what makes a good credit score. Nevertheless, only use this as a guide.

During application, it will be easier for you to get your mortgage application accepted if you have a higher credit score. If you have a low credit score, you can still raise it using some strategies. You can check out Hot Tips to improve your credit score to learn how to increase your low credit score.

How Much Mortgage Can a Company Director Get?

The amount of mortgage a company director can get varies between lenders. Some lenders may only give up to 4.5 times your yearly income if you are self-employed, but some will lend up to 5.5 times if you are a high earner. 

The following also determines how much you can borrow:

  • Your company’s profit, after or before taxes 
  • Your dividends
  • Your directors’ Pay As You Earn (PAYE) salary—also known as directors remuneration.

Depending on your circumstances, this can be taken from just one year’s documentation, an average of the two years, or your most recent year’s figures. 

Conclusion

Getting a mortgage as a limited company director does not get any easier. Starting the mortgage application process while managing the company’s day-to-day operations can be challenging.

However, working with a specialist mortgage broker like us makes the entire process easier and even increases your chances of securing a mortgage. So, if you are ready to get a mortgage, contact us now to begin.

FAQs

Can I get a mortgage with my dividend income as a limited company director?

Yes, you can. As a limited company director, dividends are typically included in your total income when determining your eligibility for a mortgage. For many mortgage providers, this is a standard practice, and when determining lending level, dividends often count equally to salaries.

Can I still get a mortgage if my limited company has made a loss?

Mortgage lenders may not be willing to give you a mortgage if your limited company’s accounts show a loss. However, working with specialist brokers who understand the challenges of managing a small business can help. Also, if your losses are older than the last two years or are typical of the teething troubles all companies experience, then your application may still be approved.

Is it possible to get a mortgage using retained profits?

You can get a mortgage based on retained profits. However, if you want a mortgage lender to count retained profits towards earnings, you need to choose a specialist lender instead of a mainstream one. Also, note that before making a decision, the lender will want to be sure about your finances and might require extra proof of your income and company.

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Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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