Dividend Mortgage

Can dividend income from multiple companies be included in a mortgage application?

Absolutely. It’s your income, so we can use it. Generally, your tax documents combine it all anyway. Lenders use all of your dividend income, no matter how many companies that comes from. I’ve never met anyone with more than we can handle.

We’ve also helped people with companies in a group structure. You might own a company that owns shares in other businesses. It can get quite complex, but there’s no reason why you can’t use multiple dividends.

How do lenders calculate affordability if my dividends vary from year to year?

Most people’s dividends vary. It’s more unusual for income not to vary if you’re self-employed – unless your business is doing well and you’re paying yourself right to the top of basic taxpayer threshold. That might be fairly consistent year on year – but more often it changes.

If it varies, lenders will generally average the last two years, but a couple of lenders will just take the latest one. You might have had a startup year, for example, with low profits, and your second year is much better. Some lenders we can go to will just look at that latest number.

The thing that can disappoint people is that if your income has gone down, lenders don’t average it out. They just take the lowest or latest. That can be something to look out for when you’re self-employed or run a limited company.

Will using dividends for a mortgage affect the interest rates or terms offered?

Not really. It might just influence our lender choice. As I said earlier, they don’t have specific products for the self-employed or people with certain income structures. If you fit a lender’s criteria, you can just choose from their current product range.

What documentation is typically required to prove dividend income for a mortgage application?

There are some specific documents that we always ask for from self-employed people. They are HMRC documents – particularly an SA302, which is a summary of your income in that tax year. It could also be called a tax calculation. Your accountant can download that from their software, or if you get it yourself from HMRC, it’s called an SA302.

That breaks down your salary from employment or from your own limited company, which might be £12,000 or so. Then it lists your dividends, and any other income like interest or rent from land and property.

Alongside that is a document called a tax overview, which summarises your tax account for that year. It shows the amount of tax due, and hopefully that you paid it.

The only difference is around when you need to file the documents. Once the tax year ends in April, you could do your tax return, and we can use that income. Your tax overview will show that you’ve got a tax bill, but you haven’t got to pay it yet – the deadline is the end of January, so it might not be settled yet. We still want the tax calculation and tax overview.

If you’re a limited company director, I’ll also ask you for your latest set of accounts. It might be better to look at your salary and profits, not dividends at all, as some lenders will look at that, and it might give you more income.

How do I apply for a mortgage using dividends? How can a mortgage broker help here?

You can apply by speaking to a mortgage broker, because there are some complexities with this, and some lenders are more suitable than others.

We know where to go and what income to use. That’s why you need to speak to a mortgage broker. It’s always good to get advice, but with any complexities to your income, you’re best off getting an expert to help you.

Key Takeaways:

• Mortgage lenders treat dividend income the same as salary, combining both to calculate your total income and confirm how much you can borrow.
• While there are no specific mortgage products for borrowers with dividend-based income, you are not penalised and can receive the same rates and products as other applicants. Your income structure, however, may influence the choice of lender, as some are more generous than others when assessing self-employed applicants.
• Lenders generally require two years of income history for self-employed individuals and will average the dividends over that period. If your income has varied, lenders typically take the average of the last two years, but if your income has gone down, they will take the lowest or latest amount, not the average.
• Dividend income from multiple companies can be included in a mortgage application, as lenders use all of your dividend income.
• To prove dividend income, you typically need HMRC documents, specifically the SA302 (or tax calculation) and a tax overview. Limited company directors will also be asked for their latest set of accounts.
  
  

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.