Company Director Mortgages
For anyone, it can be difficult knowing where to start looking for a mortgage, as there are hundreds of mortgage products available on the market. But you might find that you’ll particularly struggle if you are a company director looking for a mortgage, as the lending criteria implemented by many mainstream lenders is not particularly favourable to self-employed applicants and is less so when it comes to limited company directors.
Why is it More Difficult for Company Directors To Get A Mortgage?
It can feel quite ironic that in some instances, company directors find it more difficult to obtain a mortgage than the employees whose salaries they pay. ‘Why?’ you may be thinking.
Well, let us explain…
Lender policy on income requirements varies significantly across the market and can be quite complex, so borrowers declined by banks on the high street, tend to turn to brokers for help.
So when you start looking for a mortgage as a company director, the application criteria can vary quite considerably between different lenders based on factors such as, how they will calculate your income figure for the purposes of affordability assessment and working out how much you can borrow.
What Will A Lender Require?
In order to obtain a company director mortgage, lenders expect your company to have been trading for at least a year before you apply for a mortgage. Some lenders may make exceptions for certain professionals (such as doctors) who have been operating as a limited company for less than a year, but this would normally only be considered where a contract can be used as evidence of ongoing and future income.
Lenders will also typically want to see your company accounts covering at least one full tax year. It is not uncommon to be asked to provide two or three years’ worth. In some cases – where your company’s accounting year does not run from April to April and therefore your first tax return doesn’t cover a full trading year, lenders may be willing to look at a 12-month “snapshot” of your accounts rather than making you wait until the next tax year before applying.
Will I Have To Put Down A Bigger Deposit?
For the most part, eligible borrowers who own a company are treated the same as any other borrower in terms of deposit requirements. Up to 95% loan to value is required (LTV) in straightforward scenarios, with a larger deposit typically required only in cases with an adverse credit history, or to gain access to more attractively priced mortgage products.
How Will The Lender Work Out My Income?
As a director, you are likely to have taken advice from your accountant aimed at maximising tax efficiency – for example retaining profits within the company structure and splitting money drawn from the company between salary and dividends. Unfortunately, this can be detrimental to your borrowing ability with how many lenders assess your income and in turn affordability.
However, we understand that when it comes to providing mortgages to company directors your base salary provides an incomplete picture of how profitable that company is. That said, different lenders still vary in how they will calculate your “income”, and this can affect both their affordability assessments and how much you will be allowed to borrow.
The majority of lenders and particularly more mainstream lenders will consider the only money that you have drawn from the company to be your income. Therefore, most lenders when assessing a mortgage application by a company director, will take account of the salary and dividends drawn from the company.
However, there are some specialist lenders who will instead consider your share of the company’s net profits as your income, which can make a considerable difference in affordability calculations and the maximum loan amount.
Why Choose Us
There’s lots to consider when it comes to obtaining a company director mortgage, but it doesn’t have to be a challenge. Maybe, your company hasn’t got a long history of trading, or you’re unsure what can count as income. Perhaps you retained some profit in your company for tax efficiency or investment purposes and need a lender that will consider your share of the retained profits as income.
Whatever your individual circumstances, we have the skills and expertise to help. All you need to do to get the ball rolling is give us a call.
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