Mortgages for limited company directors can be more complicated than other kinds of self-employed mortgages. Still, they’re much simpler to secure if you know where to get the best advice. In this guide to limited company director mortgages, we cover various topics, including the typical requirements for these products, how to provide proof of your income, and much more.
Limited company directors can choose from various mortgage options, and there are mortgage lenders who specialize in this market. Finding a lender such as the Right Mortgage UK who comprehends your employment status is crucial if you’re a limited company director. This is because the manner you must report your income and how it will be appraised will differ from a client in full-time employment.
Your trading history matters
In general, getting a mortgage requires that you have been trading for at least 12 months (the only exception is for doctors and other professionals who are potentially eligible with a lesser trading history subject to evidence of contracted future income).
Although a complete set of accounts for a tax year is ideal, some lenders will accept a rolling 12-month snapshot instead of waiting for you to finish the second tax year before submitting your application if your trading year covers two tax years.
How will my income be determined?
A lender will want to see all of your income from your business and other sources, including Buy to Let homes or other PAYE income. They will also consider your partner’s income if you want a shared mortgage.
You typically receive a little compensation as a Limited Company Director. Usually, this is limited to the yearly pre-tax allowance of £12,570.
Additionally, you receive dividend payments from your earnings. In general, you can borrow more money the more money you earn. Your lender will examine your end-of-year accounts and your tax year overview and calculation from HMRC to determine this income.
The profit retained in your company is profit that hasn’t yet been distributed. This is money you haven’t yet withdrawn, which some lenders will consider as proof of the viability of your company. Please keep this in mind and let your mortgage advisor know if this is a more advantageous figure for you since some lenders will also replace income + dividends with salary + net profit.
Whether your mortgage application is simple (i.e., no adverse credit, sufficient evidence of income, etc.) or complicated (i.e., adverse credit, etc.), the amount of deposit company directors are requested to place will likely vary.
Most specialty lenders will accept a 15% deposit as a standard; one specialist lender, however, will consider a 95% loan to value ratio (LTV) under certain conditions. You might need to meet a higher criterion depending on the nature and recentness of your credit concerns.
Consulting a mortgage broker who specializes in helping people who trade in this way could mean the difference between mortgage approval and being disappointed.