As a Limited Company Director, will it be possible for me to get a mortgage?
Limited Company Directors are considered Self-Employed mortgage applicants for the purposes of their application; and whilst this means you will undergo a more intensive application process, it doesn’t necessarily mean that it will be more difficult for you to obtain a mortgage than it is for anyone else.
No matter your trading style, it’s not as difficult for Self-Employed applicants to secure a mortgage as is commonly believed. Those applicants who can provide proof of a stable income will find a suitable mortgage, so long as they approach a lender whose criteria they are able to match.
How do I document my trading history?
Although Mortgage Lenders criterias can vary slightly, most will be looking for two to three years of trading history with a stable earnings. Some of the more specialist lenders may be willing to accept those with a single year of accounts available, however, this is fairly niche and the offer will come with an increased interest rate.
In order to prove your income you will need fully documented trading history, including certified accounts, SA302 tax returns and bank statements from your business. You may additionally need to provide income projections and future business plans, especially if you have a shorter trading history.
What will count as income?
As a Limited Company Director, the majority of lenders take into account your personal salary and dividends payments, which will be averaged over a number of years, in line with their criteria.
There are some lenders who will be willing to consider your net business profits, although this is fairly unusual. It can, however, be beneficial for some circumstances.
How do I prove my income?
Although there can be a degree of difference between what individual Mortgage Lenders require, as a Limited Company Director, you are most likely to need to provide the following:
- Certified accounts covering the most recent two to three years
- Your SA302 tax forms for the same period
- Your HMRC tax overview for the same period
- Business bank statements
Although you may pay yourself a salary as Limited Company Directors through your company, this will not be considered PAYE income and therefore your payslips will not provide suitable evidence of your personal income.
Dividends are more likely to be considered by lenders than your retained business profits, so it’s potentially beneficial to draw down additional dividends from the business in the years preceding your mortgage application, despite this going against standard business practice.
If you do manage to find a lender who is willing to consider you retained profits in support of your mortgage application, it’s worth noting that this can be a more complex application, meaning that it’s often easier for the Mortgage Lender to deal directly with your accountant.
What if I have fluctuating income?
Mortgage Lenders assess Self-Employed mortgages using an average income figure to mitigate the increased risk of a fluctuating income, so some degree of fluctuation is expected if you are a business owner.
If you experience a continued decline in either your personal income and/or your net business profits, it’s likely that your loan figure will be based on the most recent year’s income only.
How much will I be able to borrow?
There are a lot of things that can impact your loan amount, however, being a Limited Company Director in itself, does not. The following factors will help the lender to decide how much you can borrow, and this will usually sit between three and five times your annual income:
- You overall annual income
- Your current credit score
- How long your business has been trading
- Any existing financial responsibilities and outgoings you have
- Whether you apply alone or jointly
What deposit will I need?
Being a business owner, or indeed Self-Employed does not mean you will need to provide more than the minimum 10% deposit that is standard for a residential property purchase. If you can afford to offer a larger deposit, however, this can improve the strength of your application and give you access to better mortgage rates from most lenders.
How can What Life & Mortgages help?
Applying for a mortgage can be a stressful process and for business owners and other Self-Employed applicants in particular, the proof of income required can be fairly onerous.
Here, at What Life & Mortgages, our experienced Mortgage Brokers specialise in Limited Company Director mortgages. We can access competitive deals that won’t be available from high street lenders and help you prepare for your application, to ensure you have the right documentation at hand.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.