Mortgages for limited company directors
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Mortgages for limited company directors
As a limited company director, you’re used to managing your own business. You have to handle your own contracts, clients, income and accounts, not to mention being the sole person in charge of business growth. But, when it comes to getting a mortgage, things might feel unexpectedly complicated. Though there’s nothing stopping you getting a mortgage as a limited company director – and there are many out there for you to choose from – the process itself has a few more steps, compared to if you were an employed applicant.
The way you pay yourself, how your accounts are structured and what lenders look for can all make the process feel less straightforward than it should be, but we’re here to help. At Everest Mortgages, we help you to secure the funding you need, whether you’re buying your first home, remortgaging or investing in a new property.
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What is a limited company director mortgage?
As the name suggests, a limited company director mortgage is a self-employed mortgage that’s designed with business owners and directors in mind. These mortgages work in a similar way to other mortgages – for example, you’ll have the chance to consider a fixed rate mortgage, a no deposit mortgage and a 95% loan-to-value (LTV) mortgage – but the application process is slightly different.
As your income structure is different from someone who’s employed and paid via PAYE, lenders assess your finances in a slightly different way. Instead of just looking at payslips and the money that hits your bank account every month, they’ll examine your company’s accounts, dividends and retained profits, using this information to build a full picture of what you can afford.
How do limited company director mortgages work?
When you apply for a mortgage as a small business owner or company director, lenders want to see that both you and your business are in a strong financial position. You’ll usually be classed as self-employed and your income will be calculated using your salary, dividends and your share of the business’ profits, depending how you’re paid. This is why working with a specialist broker like Everest Mortgages is beneficial, as we know exactly what lenders are looking for.
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Proof of income for a limited company director mortgage
Unlike an employed applicant, who just has to provide payslips and bank statements, limited company directors need to provide business and personal documentation to prove their income and financial stability.
There’s a range of information lenders can ask for, but most are interested in:
- Seeing 2 to 3 years of full company accounts.
- Your SA302 tax calculations and tax year overviews from HMRC.
- Recent business bank statements covering the last 3 to 6 months.
- Personal bank statements, showing you have a regular income.
- A reference or certificate from your accountant, confirming your income and trading performance.
If your company has been trading for less than 2 years, don’t panic, you can still apply for a mortgage. There are specialist lenders who will consider a single year of accounts, especially if your business is growing steadily.
Do you have enough of a limited company mortgage deposit?
Deposit requirements for limited company directors are similar to any other borrower. On average, you will need to save around 10% for a residential mortgage, and closer to 20% for a buy-to-let or investment mortgage.
However, there are low deposit mortgages and no deposit mortgages available, so not having a large deposit won’t necessarily hold you back. The larger your deposit, the lower your LTV ratio, which means better interest rates and more lenders to choose from.
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The pros and cons of a director mortgage
There are a lot of benefits that come with choosing a mortgage that’s purposely designed for limited company directors, such as:
- You can use dividends and retained profits to boost your borrowing power.
- You can access lending that’s designed for business owners and directors.
- Most specialist lenders accept flexible documentation and various forms of income.
- You can access the same rates as employed borrowers if you know where to look.
Of course, there’s also a few downsides to choosing a limited company director mortgage, including:
- Lenders may look at your average income over several years, which can reduce your borrowing if you experienced a dip in profits.
- Complex accounts can slow down applications, especially if documents aren’t prepared properly.
- Not all lenders accept retained profits, meaning you could borrow less unless you have help from a mortgage broker.
The application process: Self-employed mortgages for directors
Review your finances beforehand
Before you apply for a self-employed mortgage, make sure you gather your accounts, SA302s and bank statements. It’s also a good idea to ensure your business is trading profitably and up to date with tax filings. You don’t want to be midway through applying for a mortgage, only to find yourself facing a financial hurdle that’s hard to overcome.
Check your credit report
Be sure to check your credit report, resolve any discrepancies and ensure your personal credit record is healthy. A poor credit score or negative marks on your report could impact how much you’re allowed to borrow and the mortgage rate you’re given. Don’t let incorrect information hold you back.
Speak to your accountant
If you have a limited company accountant, speak to them about your plans. Let them know you’re applying for a mortgage so they can help to prepare your documents correctly.
Work with a mortgage broker
With so much to think about when you apply for a self-employed mortgage, it’s a good idea to work with a mortgage broker. A specialist broker, like the team here at Everest Mortgages, will identify which lenders understand director income and maximise your borrowing potential.
Apply and provide evidence
Once everything is in order, you can apply for a mortgage. Your broker will submit your application and work with the lender throughout the process, ensuring a smooth process from start to finish.
At Everest Mortgages, our job is to help lenders see the full picture of your affordability and financial stability as a limited company director. We’ll help you to turn your hard work into home ownership or a more affordable remortgage deal.
Frequently asked questions
Do I need to have been trading for a certain number of years to get a director mortgage?
Most lenders prefer at least 2 or 3 years of accounts, but some will consider 1 year or less if you have strong financial evidence and a growing business.
Will I be classed as self-employed if I’m a director?
Yes, most mortgage lenders will treat limited company directors as self-employed.
Are mortgage rates higher for company directors?
No, not always. With good credit, strong accounts and a reasonable deposit, you can access the same competitive rates as employed borrowers.
How much can limited company directors borrow?
The amount you can borrow depends on several factors, including your income, company performance, credit history and deposit size. Most lenders offer income multiples of around 4.5x to 5x your annual income.
Can you get a mortgage through a Ltd company?
Absolutely. It’s common for landlords and investors to use a limited company mortgage.
Is bad credit a problem?
Some specialist lenders will still lend if you have bad credit, but the interest rates might be higher.