Director mortgages
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Director mortgages
There’s a lot to be proud of when you’re a director; you’ve climbed the ranks, started a business and are thriving as the head of a company, with the freedom and flexibility to make your professional career really work for you. But, being a company director can make securing a mortgage a little more complicated than you might expect. That’s because how you’re paid, the structure of your company and the type of director you are all have an impact, and you’re not treated as being a standard, employed applicant.
There’s a wide range of mortgages for small business owners out there, but understanding your options is key to finding the right company director mortgage for you. At Everest Mortgages, we specialise in helping directors to navigate the unique challenges involved, helping you to take your next step on the property ladder as simply as possible.
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What is a company director mortgage?
A company director mortgage is specifically designed for individuals who hold a director role within a company. Whether it’s a limited company, partnership or other corporate structure, company director mortgages are designed with you in mind. As many directors are paid through a mix of salary, dividends and retained profits, lenders often treat you as self-employed applicants. This can require additional documentation to prove income and affordability, which Everest Mortgages can help you with.
Who are company director mortgages for?
A lot of business owners and directors can benefit from company director mortgages, including:
- If you’re a company director or shareholder and you draw dividends from the business.
- If you want to use your business income – including salary, dividends or retained profits – as part of your application.
- If you are self-employed with your own business, and you want access to a wide selection of mortgage rates and terms.
- If you’re a director who’s planning on purchasing your first home, moving, remortgaging or buying an investment property.
Get to grips with director mortgages
It doesn’t matter if you’re looking for a fixed rate mortgage, a no deposit mortgage or a variable rate mortgage, company director mortgages all work in a similar way. When you’re applying as a director, lenders will consider both your personal and business finances. This means that unlike employed applicants, you will probably need to provide additional evidence of income, such as:
- Audited or filed company accounts, usually spanning 2 or 3 years.
- SA302 tax returns from HMRC.
- A reference or certificate from your accountant.
- Business bank statements, typically covering the last 3 months.
- Information about your personal credit history and proof of income.
Lenders will then assess your application based on the size of your deposit and your personal affordability, alongside your business’ performance and financial health. They will also look at your credit score and previous borrowing history.
How much can company directors borrow?
As is the case with anyone applying for a mortgage, your income dictates how much you can borrow as a company director. The exact amount varies depending on how much you earn, the size of your deposit and the lender you choose, but income multiples generally range from 3.5x to 5x of your income.
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The benefits of mortgages for small business owners
You can use dividends
Most lenders will allow dividend income to be used as part of your regular income, which is factored into your company director mortgage application.
You can use retained profits
Some lenders consider profits left in the company when they’re calculating affordability, giving you even more flexibility in regards to how much you can borrow.
You might be able to borrow more
If you’re a company director with an accountant, you might be able to use their knowledge to structure your income in a way that maximises your borrowing power.
You can access normal interest rates
If your accounts and credit history are in order, you might be able to secure the same competitive rates as employed borrowers, despite being a self-employed director.
Things to consider before you apply for a director mortgage
Company performance will impact your borrowing
If you’ve recently endured a few years of poor trading, lenders might reduce how much you can borrow.
Your income can fluctuate
If you’re a director who draws a lower salary, you might rely on dividends, which can suggest to lenders that your income fluctuates.
You’re treated as self-employed
As a company director, you’re usually seen as being self-employed, which means lenders may require more detailed documentation and longer trading history.
Lengthy application process
Applying for a company director mortgage can take longer than standard mortgages, due to verification of your business finances.
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How to apply for a director mortgage
Securing a mortgage as a company director requires careful preparation and a little bit more work than if you were an employed applicant. But, it’s by no means an impossible task. At Everest Mortgages, we can guide you through the process, ensuring you find the right director mortgage for you.
- Firstly, you need to prepare your personal and business finances, ensuring your accounts reflect a healthy financial position.
- Next, try to reduce any personal debt. Your affordability is based on how your income compares to your outgoings, so clearing credit card balances and loans can improve your borrowing potential.
- It’s a good idea to work with an accountant, who can prepare and verify your accounts and provide certificates needed for your mortgage application.
- Take a moment to check your credit score, giving yourself enough time to correct any errors.
- Speak to a specialist mortgage broker, like the experts here at Everest Mortgages, who can help you to access the right lenders and maximise your borrowing potential.
At Everest Mortgages, we understand the ins and outs of mortgages for company directors. With our expertise, company directors often secure better rates and faster approvals than trying to go it alone.
FAQs
Frequently asked questions
Will I be classed as self-employed for a mortgage?
Yes, most mortgage lenders treat company directors as self-employed. This is because your income depends on your business’ performance and dividends, much like self-employed professionals.
Can company directors use dividend income as part of a mortgage application?
Yes, of course. Most lenders accept dividend income and will factor it into eligibility, regardless of whether it’s drawn monthly, quarterly or annually.
What if my company is currently operating at a loss?
Though a loss doesn’t automatically disqualify you from getting a direct mortgage, lenders might want to know why the loss has happened. They might also request projections showing future business profitability.
Will I pay a higher interest rate as a director?
No, not always. If you have a good credit history and strong accounts going back 2 or 3 years, you should be able to access standard mortgage rates.
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