Mortgages for Limited Company Directors
Now more than ever, a vast number of people receive an income which differs from the norm. Although the Covid-19 pandemic proved detrimental for the majority of businesses, it remains that it opened up a plethora of possibilities for many. Specifically, in terms of going self-employed, whether this meant creating a new startup, undertaking freelance work, embarking on a sole tradership or partnership, or becoming a contractor. It’s easy to see why such independence is attractive; being self-employed can signal a more lucrative income while intrinsically bringing with it a singular degree of flexibility.
This being said, there is one attached downside to self-employment, that which shows itself when you come to get a mortgage. Indeed, despite the prevalence of independent employment today, high street mortgage providers still have difficulty accurately defining the income of those concerned. Given that this comprises a central aspect of a mortgage application, it thereby makes it trickier for self-employed people to get onto the property ladder, relative to those who receive a regular salary. When this is taken into account, on top of the housing market’s biting level of competitiveness, those such as limited company directors tend to feel disheartened when evaluating their chances of securing a mortgage deal.
However, while you might have to take an unconventional approach to applying for a mortgage, it remains that there are mortgages for limited company directors out there to be taken. The fact of the matter is that, if you are a company director who’s looking for a perfect mortgage deal, then you’ll have to open yourself to specialist advice. Fundamentally, this is because mortgages which are specifically designed for limited company directors fall into the category of specialist mortgage types. It’s common to not anticipate your employment type acting as a slight barrier to the mortgage market, but it’s important to remember that there is always an extant mortgage solution, regardless of your personal situation and financial circumstances. The crux lies in finding a niche lender who is accustomed to handling more distinct cases. If you wish to guarantee this, then we strongly suggest that you hire the services of an expert mortgage broker to comprehensively navigate the options which are available to you. We at The Mortgage Genie have helped plenty of our UK clients in getting them a mortgage as a limited company director, effectively negating the usual obstacles. If you’re interested in joining those among our success stories, then be sure to get in touch today at 01915809890.
Yet, despite what our service can do for you, we still advise that you get to grips with all the salient aspects concerning mortgages for limited company directors. So that you can familiarise yourself with the significant details, we’ve put together this piece which covers all of the information you need to know before making a decision. We will go over:
How do mortgages for company directors work?
On the surface, a mortgage for a company director works similarly to how a standard residential mortgage works. Namely, you’ll submit an application and if you meet the lender’s criteria, then you’ll begin to make monthly repayments on the mortgage.
The distinction lies in how said lenders assess your eligibility. That is, a typical high street lender will use a rather narrow method when calculating your income. Evidently, this is a problem for company directors, given that one’s overall income as a company director isn’t so straightforward as receiving a set wage. And so, it’s common for company directors to not pass affordability checks, even though they may be able to realistically afford the mortgage.
It used to be possible for the self-employed to certify a mortgage themselves. However, this resulted in a market crash, and so lenders now take a wholly rigid and inflexible approach when weighing up such candidates’ risk factors. As we mentioned, specialist lenders adopt a more pragmatic approach in this area.
How do you prove your income as a company director?
Inherently, an individual’s income serves as the basis for their mortgage application in that it plays a core role in determining someone’s affordability. Mortgage lenders have to be entirely satisfied regarding your ability to meet those monthly repayments, and so are rigorous when verifying this facet of your application. After all, it would be irresponsible to hand out a loan knowing someone could not comfortably afford it, implying consequences for lender and borrower alike.
For those who are under conventional employment, this is easily done by presenting payslips and details on typical outgoings. Albeit, for company directors, it is what separates their mortgage applications from others. This is because, chiefly, company directors’ incomes generally aren’t received from a single source. This varied income is precisely what causes doubt in most high street lenders. Specifically, you can prove your income as a company director by providing:
One or more years’ worth of accounts which have been certified by a qualified accountant
A Self Assessment tax return document (SA302)
Statements from both your personal and business bank accounts
In essence, lenders will work off the back of this evidence in order to calculate your total income, consisting of the salary you pay yourself as well as the dividends you receive year-to-year. It’s widely believed that any self-employed individual looking for a mortgage is required to have at least three years’ worth of accounts, but this is erroneous - you can even get mortgages when you have no accounts, assuming you receive specialist advice.
Can I get a mortgage as a limited company director?
Answered simply, yes, you can get a mortgage as a limited company director. The caveat is that, as we’ve stressed, there is a limited number of select lenders who are prepared to fully account for every aspect of your income. As such, to improve your chances of securing a mortgage deal, we highly recommend that you contact a specialist mortgage broker who can evaluate your personal situation and individual circumstances so as to match you with a corresponding provider.
It really is a matter of finding the right lender for you, and mainstream brokers are unlikely to fulfil your requirements. Additionally, it’s sometimes the case that company directors have experienced a loss in their business or changed their trading style, contextual marks that can impress further complications onto the subject. This invariably leads to rejection from high street lenders, whereas specialist lenders are always in possession of mortgage solutions for such unique conditions.
What mortgage deposit will I need as a company director?
Alongside your income, the kind of mortgage deposit you’re able to put forward makes up another large part of your application. In practice, the size of your deposit works to determine the prospective property, the nature of the mortgage, and your general suitability for it. For the latter, this is down to how your mortgage deposit indicates how healthy your money-handling capabilities are, i.e., if you can save a substantial amount of money, then it’s likely that you are less of a risk to lenders.
The property you’re after and the nature of your mortgage figures in your deposit by how it suggests your loan-to-value (LTV) ratio. Namely, what degree of expense falls on the lender, and what falls on you as an applicant. Because there is already a level of added complexity with company director mortgages, it’s essential for you to enhance your application as much as possible before you even apply.
Followingly, good practice for company directors is to obtain a deposit of at least between 20-25%, entitling you to a 80% LTV mortgage or 75% LTV mortgage, respectively. Evidently, the lower the LTV ratio, the higher your chances of housing success. Not to mention, lower LTV mortgages come with better interest rates. Better interest rates, of course, meaning lower monthly repayments, a significant consideration when factoring in the extra fees and charges that come with all mortgage packages.
Can I borrow using my company’s retained profits?
If you’re a company director then there’s another option that’s open to you, and that is using the profits which your business or company has retained. Although, again, the majority of high street lenders will reject you if you try to get a mortgage this way. Reason being, that such lenders want you to utilise the income that you yourself have earned, as opposed to that of your business.
It’s worth reiterating the theme here, that retained profit mortgages do exist. But, if you wish to borrow this way, then it’s vital that you have a specialist mortgage broker assess your circumstances so as to match you with an according specialist lender who is accustomed to people in similar situations.
Can I get a company director mortgage with bad credit?
In line with there being a mortgage deal for everyone, regardless of personal circumstances, it is feasible for company directors to get a mortgage if they have bad credit. Having said this, given that lenders already take caution when approaching a self-employed mortgage, having bad credit on top of this works to further limit your options.
This is because bad credit imposes a negative influence on mortgage applications. Namely, it categorically suggests that your finances bring in an associated risk, increasing the potential that you may miss monthly repayments. So, when a mortgage provider carries out a credit check as part of their eligibility assessment and sees that you either have a poor quality credit score, have handled a court county judgement (CCJ), have had an IVA, failed to meet payday loans, or ever filed for bankruptcy in the past, then this might directly cause them to reject your application. Yet still, the impact of such instances is lessened if they occurred more than six years ago. Likewise, having experienced negative financial circumstances does not go to rule out your mortgage eligibility altogether. As we’ve said, anyone can get a mortgage, you just have to receive the right advice, and subsequently be allocated to a lender who is willing to look into the story behind your records.
It should be mentioned here that hard credit checks leave a mark on your report. And so, if you want to get an idea of your current financial suitability before submitting your mortgage application, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to reveal any potential mistakes or fraudulent activity on your profile, so that you can deal with such problems quickly and effectively. The trial and subscription can be cancelled at any time.
Here at The Mortgage Genie we have an in-depth understanding on how to get a mortgage, and are dedicated to assisting people secure loans of all types. We hope that this article has addressed any questions and ambiguities you may have had surrounding mortgages for limited company directors, all while debunking any myths on the matter.
Every day we help an increasing number of people to achieve housing happiness by finding them the correct mortgage deal for them, one which is tailored to their personal situation and individual circumstances, as well as by offering guidance through each step of the complicated process. If you’re in need of a team of expert mortgage brokers, then be sure to contact us at 01915809890 and we’ll begin to work on a solution that has you owning your dream home. And why not see how much you could borrow up to today by using our mortgage calculator?