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Applying for a mortgage as a limited company director can seem quite daunting for some.
Even if you don’t find it daunting, finding time to run a company whilst also preparing and processing a mortgage application process at the same time can be a bit of a headache.
As with any Self-Employed Mortgage, preparation is key, so working with an experienced mortgage broker that knows self-employed criteria well, early into the buying or remortgaging process, can prove to be very useful.
At Rosehill we’d carry out a full assessment of your documents and aim to have you fully prepped for your property search or remortgage to allow for a smoother process.
In the meantime, here’s a simple guide on how to get a mortgage as a Limited Company Directors.
The simple answer is yes.
It might not be as straightforward as a mortgage application for an employed person, however there are some mortgage lenders who even have a specific focus and specialise in mortgages for Limited Company Directors and the self-employed.
You’ll find that different lenders will have different eligibility criteria for Limited Company Directors applicants.
For instance, this can range from the type of income to be assessed to the number of years’ trading history you have.
Therefore a mortgage broker with good knowledge of mortgage criteria for Limited Company Directors will help you save time in your search.
Just be sure that you choose a broker who you like and trust and is also authorised & regulated by the Financial Conduct Authority (FCA).
There’s a few documents that you’ll want to gather to show proof of income for your mortgage application.
You can find a more extensive list of documents to gather here, but if we’re specifically looking at income documents, you’ll need:
1. Tax Calculation (SA302s) and corresponding Tax Year Overviews covering up to the latest 3 years
2. Signed Limited Company accounts covering up to the latest 3 years
3. In some instances an accountants reference may be required
4. Business and personal bank statements covering the latest 3 months
5. Latest contracts covering up to the latest 2 years (if contracting through a Limited Company)
6. Potentially the latest 3-12 months’ payslips if you’re part of the Construction Industry Scheme (CIS)
If you contact us we have guides that we can provide to gather these documents, or these can also be obtained through your accountant.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
When it comes to income assessment, mortgage lender criteria varies for Limited Company Directors, making it difficult to get a good idea of maximum lending.
For instance, most lenders will look to use your salary & dividend figures as shown on your Tax Calculations (SA302s).
This document is essentially the equivalent to an employed persons’ P60, as it will show the annual salary & dividend figures.
However, there are a small number of lenders who can use your share of company net profits plus your salary – if you tend to keep more money, this can help you boost your lending!
In addition, lenders may also look at other sources of income too, such as company retained earnings (profits held in the business but not yet paid out) and Buy to Let income.
Working out how much you can borrow for a Limited Company Director mortgage is not a very straightforward task.
As different lenders have different criteria surrounding which forms of income they’ll use and whether they’d average your income over the years or use the latest year’s income means that the maximum lending could vary quite substantially.
To give you a very simple example (not accounting for any other factors) of how much lending can vary let’s take the following example:
Latest Year
Salary: £12,000
Dividends: £38,000
Share of company net profits (before dividends): £80,000
Previous Year
Salary: £12,000
Dividends: £20,000
Share of company net profits (before dividends): £50,000
Lender A who will consider your salary plus dividends, averaged over the last two years, may lend a maximum of £184,500.
Lender B, who will consider your salary plus share of company net profits, based on the latest year’s income, may lend a maximum of £414,000+.
For this reason, we’d recommend speaking with a broker who is well-versed in self-employed mortgages to get a better idea based on your specific circumstances.
We receive enquiries from clients who thought they needed a higher deposit due to being self-employed.
However, this isn’t necessarily the case.
It is possible to secure a mortgage as a Limited Company Director with as low as a 5% deposit, although a smaller selection of mortgage lenders will be available when compared to a deposit of 10% or more.
In addition, your credit history can make in impact on the deposit required. Consider checking your credit file.
There are schemes such as the Mortgage Guarantee Scheme through the Government which may also be available.
Generally speaking, up to a certain level, lower interest rates become available at each 5% increment in your deposit (5%, 10%, 15% and so on).
Many lenders will require at least 2-3 years’ trading history before considering a mortgage application from a Limited Company Director.
This is because the mortgage lender wants to get comfortable with the health & profitability of a business over a longer period of time.
That being said, there are some lenders who can consider one year’s accounts.
Some businesses receive the majority of income in certain months of the year.
Similarly, some businesses operate on larger projects rather than regular smaller projects.
It can therefore become difficult for a lender to get comfortable with your income for a mortgage application.
If this is the way your business operates, it’s important to explain this to your mortgage broker.
Your broker can then package the case with a sufficient explanation to discuss with the prospective mortgage lenders.
It can be difficult to secure the mortgage you need if your business has seen negative impacts of COVID-19.
However, mortgage lenders understand that COVID-19 will have had an impact on many businesses, so some lenders have specific criteria on this topic.
Some mortgage lenders even have specific products to suit these circumstances.
We focus on building long-lasting relationships with clients.
We therefore charge a reduced fee for our existing client remortgages.
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As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home or property. The Financial Conduct Authority does not regulate commercial buy to lets and some forms of commercial mortgages. You may have to pay an early repayment charge to your existing lender if you re-mortgage
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Rose Hill Financial Services Ltd is authorised and regulated by the Financial Conduct Authority. You can find us on the Financial Services Register https://register.fca.org.uk/ under reference 912303. Registered office address: 1 Bell Street, 2nd Floor, London, England, NW1 5BY. Registered in England and Wales. Company registration no: 11997519.
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