Limited Company Director Mortgage
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Limited Company Director Mortgage
Charles Breen explains the mortgage process for limited company directors.
How does the mortgage process work for a limited company director?
It’s very similar to a standard employed applicant. It’s just that there will be more checks and balances on your income, because it’s not set and guaranteed.
The lender will look at your bank statements, ID, credit score, so it’s good to have done your prep beforehand. Make sure that you have all your accounts submitted and give your broker time to do their research. Then we can place your case with a suitable lender using the right revenue. It should all go very smoothly if you’ve done your homework beforehand.
Are there any specific mortgage products designed for limited company directors? Are there any specific lenders that specialise in mortgages for limited company directors?
Some lenders have criteria that’s better for limited company directors and self-employed applicants – but they wouldn’t only deal in self-employed customers. These are normal lenders whose criteria are just more favourable than others.
Your advisor will guide you towards these lenders where you meet their criteria. The products are no different and they’re all priced the same. If you have a 15% deposit, and you’re going with NatWest, for example, the employed and self-employed just pay the same rate. It’s all about meeting the criteria to be eligible for that rate.
What are the eligibility criteria for obtaining a mortgage as a limited company director?
You will need a minimum of a year’s accounts – which surprises a lot of people. They often think that a limited company director needs two to three years’ accounts but that’s not necessarily the case.
You’ll need a reasonable credit score, your deposit and three month’s personal bank statements and business bank statements. Then it’s based on what you’re declaring as your profit, retained revenue, dividends and salary. It’s a combination of all of those which make up your affordability.
What documents are typically required when applying for a limited company director mortgage?
It will be your submitted accounts, ideally for two years. You’ll have a wider selection of lenders if you do it for two years, but it can be done on one year’s accounts.
You’ll need three months’s personal and business bank statements. We always request a credit report before we submit anything, to see all the credit commitments. We need photo ID and your proof of deposit.
If you use a knowledgeable advisor, we’ll be able to place you with the correct lender the first time and you’ll get your mortgage nice and easy.
How do lenders assess the income of a limited company director?
Lenders assess the income in several different ways. They will use different combinations of your different revenue streams. They’ll use remuneration – which is your salary and dividends – then they can also use a combination of your operating profit and net profit.
It also depends if you’re a 20% shareholder or greater. Let’s say you’re 100% shareholder – some lenders would use operating profits towards your affordability, or the net profits after tax and before dividends.
We have a specialist calculator where we put in all these different revenue streams and they go off to the lenders’ affordability calculators. We’re able to see exactly what HSBC, Natwest, Nationwide and specialist lenders will lend you.
It’s much more accurate than assuming you can get four and a half times your income – it doesn’t always work out that cleanly for self-employed directors.
How do lenders view dividends and retained profits for a mortgage application?
Lenders will use different combinations of them all. One might use your salary and dividends while others might use salary and profit. It all changes depending on what their criteria is.
That’s why you need to go to an expert to give you this advice, rather than you aimlessly swimming around trying to find a lender and filling in calculators and getting different information every single time.
Can I still get a mortgage if I have a limited trading history as a company director?
Yes, you can get a mortgage based on one year’s trading history, once your accounts have been submitted. You will need a history in your industry – you couldn’t go from being a teacher to a self-employed ice cream seller. Lenders would think that’s too big of a risk for them.
Whereas if you were employed as an ice cream salesman and then went self-employed, they would be fine – you have experience in the industry and know how it works.
With a year’s accounts you’re limiting the selection of lenders, and possibly the amount you could borrow. A limited pool restricts you in rates and in affordability.
Are there any advantages or disadvantages to getting a mortgage as a limited company director rather than a sole trader?
It’s easier if you’re a sole trader, just because one document is needed, rather than the full company accounts. It’s a simple case of your profit last year being your income as a sole trader. There are more combinations we can use as a director.
The advantage is that even as a limited company director you can actually use retained profits with some lenders. That’s the profit you have kept in the business and not drawn out – we can use that towards your mortgage affordability.
A disadvantage of doing a mortgage as a self-employed director is that there will be more checks on you and more variations on income and revenue streams. There’s just more uncertainty when submitting it.
But we speak to our point of contact with the specific lenders and present the case to them beforehand – we almost get pre-approval before we even share the figures with them. That way we get it right the first time, and put you in the best position to get the offer quickly and easily.
Are there any restrictions or limitations on the types of properties that can be purchased with a limited company director mortgage?
Not particularly – so long as it’s mortgageable, they’ll lend to you. Whether you’re employed, self-employed or a limited company director doesn’t dictate the type of property as long as it meets their criteria and is affordable.
If you wanted a shared ownership property, you could get one – and the same if you wanted to buy a flat, a standard house, or a listed building. We just need the surveyor to confirm it’s mortgageable.
Can I use my limited company’s profits or assets to support my mortgage application?
Yes, you can use your limited company profits to help boost your affordability. It’ll be a select number of lenders – not the whole spectrum. Again, you’d want to seek professional advice before submitting it.
The lender may want to do extra checks, such as looking back at 12 months’ bank statements to see how that money was accumulated in the business and that it’s a going concern. But yes, it can be easily used.