Limited Company Director Mortgage
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Limited Company Director Mortgage
Adam Messer explains everything you need to know about limited company directors and mortgages.
Can I apply for a mortgage with my limited company?
What we’re talking about today is mortgages for individuals that have a limited company. If you’re wanting a mortgage for your limited company, that’s going to be a commercial mortgage. We can help you with that as well, but it’s a separate issue.
Today we’re discussing how to get a mortgage for a property to live in or to rent out, in your personal name, when you happen to be a limited company director.
You absolutely can use your income from your limited company to get a mortgage.
Are there mortgages tailored to limited company directors?
There aren’t particular mortgages tailored to company directors, but some lenders are better set up to deal with them.
When you think about the different types of income we can look at for company directors, most lenders default to salary and dividends. They don’t deal with the intricacies of other ways limited company directors can get paid.
But there are lenders that take a wider view and look at different types of income and how your earnings are made up. Sometimes these are better to go to than others.
How do I prove my income or document my trading history?
There are a few different things and we’ll share a spreadsheet that breaks down what we need. To give you the very best advice as a limited company director we need quite a lot of figures.
It’s best to get all this information from your accountant, but I tend to ask for your last two years SA302s or tax calculations. These give us a breakdown of your salary and dividends in the tax year. Alongside those we need tax year overviews as well. That’s an HMRC thing that shows you’re up to date on your tax payments.
Some lenders look at salary and dividends over your trading year rather than the tax year April to April. So we’ll get those figures as well. We’ll also get your last couple of years’ accounts – that’ll tell us about how much profit your company has made, as some lenders will use your profit as well.
Do dividends count as income for a mortgage?
Definitely – but you pay a little bit less tax on a dividend, so a lot of lenders aren’t set up for that. We definitely can use dividends as income, but they might not always be the best thing to use.
What if I have a fluctuating income?
If you own a limited company, generally your income is going to fluctuate. Most lenders take an average over the last two years if your income has been increasing. There’s the odd exception – some might just use the latest year.
If your income has gone down in the most recent year, lenders will tend to just use that figure.
What about Pay As You Earn (PAYE) income?
Most limited company directors will pay themselves a small salary that’s just below the tax threshold. It depends on the accountant, but you tend to see salaries of £8,000 to £12,000 a year.
All lenders will use that, whether we’re using profit or whether you’ll be using dividends. We’re always going to be looking at the salary that you bring home each month.
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What about retained profits?
This depends on the lender. Some lenders won’t use your profit at all. A handful of lenders will. You can sometimes get caught out if you’ve made some profit in the last few years but not as much in the most recent one. If you’ve still maintained the same level of salary and dividends you’re perfectly entitled to do that, because you’ve got the profit built up.
But a couple of lenders will say that you haven’t made enough profit in the latest year to take that level of dividend – that can catch people out sometimes.
Let’s say your company’s earned £100,000 profit and you’ve taken out £50,000 as salary and dividends. Most high street lenders are just going to use that £50k. But other lenders, including some high street banks, will use the whole £100,000. That’s going to double the amount you can borrow – so it can really make a big difference. It’s all about going to the right lender.
What deposit will I need as a limited company director?
Whether you’re self-employed or not, the deposit level is the same – a minimum of 5%. There are lenders that we can go to with a 5% deposit. The more deposit you have, the better because you can get a lower interest rate.
But it can be done with a 5% deposit and there’s no reason that a company director can’t access those same products.
How much can I borrow?
The same rules apply whether you’re employed or self-employed, and it depends which lender we go to. If we’re going to look at salary and dividends or profit, either way, that counts as your income. The lender will multiply that up by around four and a half times and that’s the amount you can borrow.
If you’ve got retained profit, that’s going to give you a much bigger lending figure than salary and dividends a lot of the time. But some people don’t have retained profit and they take everything the company makes as a dividend – that doesn’t matter.
Once we’ve established what the lender is going to take as your income, it’s treated in the same way as anyone who’s employed in terms of how much you can borrow.
How can a mortgage broker help a limited company director looking for a mortgage?
You should always use a mortgage broker – but especially as a company director. There are so many different things to consider, as we’ve talked about. There are different ways lenders use your income for a company director. It can be a bit of a minefield.
I know which lenders to go to based on whether you’ve got retained profit or not enough profit to cover the dividend taken. Or if your company’s made a loss but you’ve still taken a dividend.
There are many different scenarios for a limited company director and many figures we need. Comparison sites just aren’t set up to cope with all that information and the intricacies of lenders’ criteria.
So a mortgage broker that’s used to dealing with this kind of business is definitely going to help your situation much more than doing things by yourself.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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