Mortgage for Company Director on PAYE
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Mortgage for Company Director on PAYE
Adam Messer talks to us about mortgages and company directors on PAYE.
What is a company director on PAYE? Is it more difficult to get a mortgage as a company director on PAYE?
Company directors that own a limited company will generally have an element of PAYE in their income. You will usually pay yourself a salary, and most people I come across pay themselves a small salary that’s below the threshold to pay income tax.
That’s about £12,500 at the time we’re recording this – but it may have changed by the time you’re listening. Most directors then make the rest of their income up with dividends, although it depends on the ownership structure of the company.
It’s unusual for me to see someone who owns 50% or 100% of their business and only has PAYE income, with no dividends on top. If that’s you, I suggest you speak to your accountant.
It’s more common if you own 10%, 15% or 20% of a larger company as a shareholder and director. All the shareholders may just then be paid a salary. You’re perfectly able to get a mortgage in this situation.
We would look at your time in the company and size of shareholding. If you own less than 20% to 30% of the business, some lenders may look at you as simply employed, and just use that employment income. Others see you as a company director, so they’ll want your history and tax calculations. Also, certain lenders look at your PAYE income plus your share of the company profit.
Essentially, with company directors there are lots of different ways of looking at income, so it helps to have professional advice. With a good broker on your side, it’s no more difficult than for anyone else.
Can I still get a mortgage if I’m a company director on PAYE and only have one year’s accounts?
Potentially. There are certainly lenders we can go to with one year’s accounts, including one or two high street lenders.
Again, it depends how much of the business you own. If you own 100%, or 50% between you and your partner, one year is possible but you’ll have a little less choice.
If you just own a small share of the business and have done for the last year, you might be considered employed by some lenders – and that’ll probably give us more choice.
How will lenders assess my income as a company director on PAYE? How is affordability calculated?
This is fairly straightforward, because you’ve only got PAYE income. We don’t need to worry about dividends – you’re just like anyone else that’s employed.
Again, it depends on your share of the business. If you own less than 20%, you are employed as far as most lenders are concerned. We’re just looking at your salary. That’s quite an important factor.
If your shareholding is larger than that, lenders are going to treat you as a self-employed director of a limited company and will potentially want more history – at least the last year or more likely two.
It’s less about the here and now and more about the last couple of years. If your salary last year was £20,000, but now it’s £100,000, that doesn’t really matter. It’s the latest year or an average of the last two years that are important. That’s the income they’re going to look at.
In terms of how they then assess that income and how much they’ll lend, that’s the same as everyone else. It’s just the figure we use that’s different.
What documents do I need to prepare?
Again, it depends on your shareholding. If you own less than 20% and you’re employed, we’ll want your last three payslips and not much else.
If your shareholding is larger than that, you’re seen as self-employed – so we’re going to want a couple of years’ figures. Some lenders will look at your salary and dividends, as stated on your tax calculation and tax overview.
Your tax calculation is a summary document of all the income you’ve had that tax year. The tax overview says whether you’ve paid your tax or not. Hopefully you have for the last year.
Some other lenders, though, will look at your salary plus share of profit. So if you own half a company that has made £200,000 profit, £100,000 of that is yours. You may have paid yourself a salary of £50,000 and not taken dividends.
These lenders would still use that profit, even though you haven’t taken it out of the business. Their view is that you could have if you wanted to. They might take your income as £150,000 in that example. It’s probably an extreme case and not many people I see have that much, but it just highlights what I’m talking about.
Aside from the income proof, we also need bank statements, ID and proof of deposit – all that other usual stuff that goes with a mortgage application.
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What if my pay slips are not considered as PAYE income?
That would only be the case if you’re a larger shareholder, with 20% or 30% or more.
In that case, it’s not the here and now that matters. It’s the last couple of years’ history. We wouldn’t ask for your payslips. These are only relevant if you’re a smaller shareholder and we’re treating you as employed.
Can I get a mortgage as a company director if my business has made a loss?
That’s a very interesting question, actually, and I’ve got a couple of cases like this at the moment. The answer is potentially, yes.
There are various reasons why businesses make a loss. It could be your first year or early days, or there are hard times – such as during Covid when a lot of businesses made losses.
Let’s say you’ve previously paid yourself a £50,000 salary because there’s been enough surplus money in your business to maintain that. But in this trading period, your company hasn’t made a profit. You’ve paid yourself, but actually the company has made a bit of a loss.
On paper, some lenders would say that the company is not profitable. But you might have had five great years and built up £500,000 in the business – you’ve used that to pay yourself during these hard times. That’s the nature of business – there’s nothing wrong with that.
So there are lenders we can go to who will just look at your tax calculations and how much you’ve paid yourself for the last year or two. They won’t ask for your accounts.
There are some lenders we wouldn’t go to here, because they want company information, or they go and look it up. Instead, we approach the lenders that literally just work off your tax calculations.
How much can I borrow? What deposit will I need?
How much you can borrow will depend on all the things we talked about above. It’s how the business is set up and what your income is.
It depends which income the lenders are looking at. Once we’ve ascertained the income figure, the affordability calculations are the same as for anyone else. You can’t borrow any more or less. It’s just more complicated in getting to the income figure for the lender.
The deposit is the same as for anyone, too. The occasional lender doesn’t offer a 95% mortgage if you’re self-employed or a limited company owner – they might cap it at 90%. We don’t tend to stress too much about that. Generally, a 5% deposit is no problem.
Can I get a Buy to Let mortgage as a company director on PAYE?
Yes, absolutely. With Buy to Let mortgages lenders are much less interested in your personal income. Some don’t even ask about it and don’t set any minimum.
Depending on your situation, you might have the whole market to choose from or just a small selection, but either way you will be able to get a mortgage as a company director.
You just need to have enough deposit and the rent needs to cover the mortgage with enough margin when a stress test is applied. With Buy to Let, it’s much more about the rental income of the property as opposed to your own personal income.
How does bad credit affect me getting a mortgage as a company director on PAYE?
It depends how bad the credit is. As a company director it’s no harder or easier than for anyone else with adverse credit.
If you’ve got one missed or late payment on your credit card from two years ago, no one’s going to really care. But if you’ve got three CCJs and six defaults from the last 12 months, that’s a major issue.
Generally, some high street lenders are more flexible than others. We can also go off the high street to more specialist lenders, depending how bad things are. It’s very much a case by case situation, but if you’re a company director with credit issues, it needn’t be the end of the world.
How does remortgaging work as a company director on PAYE?
The process is the same for everyone. Calculating affordability is our first port of call – can we borrow enough elsewhere? If not, you can always just stay with the same lender. It might not always be the best deal for you but it’s much simpler.
There’s a whole podcast on remortgaging that you can enjoy, which will explain it all. The process is the same although the documents may differ, depending on how we’ll look at your income. But overall, remortgaging needn’t be any more complex than for anyone else.
How can a mortgage broker help here? Anything else to add?
If you’re a limited company director, as you’ve probably gathered, there are a few different ways of looking at your income. It’s all about knowing how to get the best results. We know which lenders to go to and which lenders aren’t worth looking at.
A price comparison site won’t tell you who’s going to use your dividends or PAYE or net profit. It can be a bit of a minefield as a company director, so it’s important to speak to someone that knows what they’re doing.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
For specialist tax advice, please refer to an accountant or tax specialist.
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