Limited Company Director Mortgages
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Limited Company Director Mortgages – a guide
Many limited company directors can find mortgages frustrating, as it’s not always straightforward to find lenders that will offer you a fair deal.
It isn’t difficult to get Limited Company Director Mortgages, but it can take expert advice to identify the products and criteria that will give you good value and unlock a good level of borrowing.
How hard is it to get a mortgage as a Limited Company Director?
It’s usually fairly easy to find a mortgage for Limited Company directors, as long as you have been in business for 12 months or more. The main challenge in finding a good Limited Company Director mortgage is achieving your borrowing goals.
Because Company Directors often have a low salary and pay themselves dividends from the company, some lenders will offer you an unfairly low loan amount.
Meanwhile other lenders will base their loan on your company’s net profit as well as salary and dividends. In this case you may be able to achieve a much higher loan amount.
How much deposit will I need?
The more you can put down as a deposit, the broader your options. A larger deposit means a lower Loan to Value (LTV). You’ll get a much better mortgage rate if you can get below an 80% LTV – by having a 20% deposit or more. It is, however, possible to buy a home with just 5-10% deposit, provided you have good credit.
It can be helpful to use a mortgage calculator to see what different property values and deposit amounts will mean for your monthly payments.
How do I prove my income for a Limited Company Director mortgage?
To maximise your borrowing you will need to demonstrate your full income to the lender. The general rule of thumb is that you can borrow around five times your annual income. But if the lender is only looking at the minimal salary you pay yourself, the loan amount might not meet your goals.
You may need to seek out specialist lenders that will look at your salary and dividends plus retained profits within your business in assessing affordability.
What documents will a mortgage lender need?
The lender will want to understand your business’ trading history, so they will ask for various documents and details as part of your mortgage application:
- Two years’ certified company accounts
- Three months’ personal and business bank statements
- Self assessment forms (SA302)
Your accountant should be able to help you pull the information together.
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What happens if I have fluctuating income?
Most lenders will take a two or three year average when calculating income, so big variations in your company’s profits can make this more complicated and may not get you the mortgage amount you’re hoping for.
If your business has experienced a fall in profits you will need to explain this to the lender. Good Mortgage Advisors will be able to recommend the most suitable approach if your income is very variable.
Are there any risks with a Limited Company Director Mortgage?
Some situations can make getting a mortgage more difficult:
- Changes in trading style – If you’ve changed the structure of your business in the past year this can be a challenge. An example is moving from sole trader to a limited company; even if your business has been running for years, lenders will still see this as a new business.
- Bad credit – Lenders always check mortgage candidates’ credit scores to understand the level of risk they are taking on. Adverse credit issues aren’t always a problem, especially if they are older or low value, but you may be charged higher interest rates. Bankruptcy, CCJs or a Debt Repayment Plan on your file will make it difficult to get a loan.
- Business loss – You may not get mortgage approval if your business has made a loss in the past 12 months. It will help if you can demonstrate plans to recover these losses.
How can a Mortgage Broker help with company director mortgages?
Here at First Thought we’ve helped many company directors get a mortgage and achieve their property goals.
First we explore your specific circumstances – your business details, life stage, aims and goals. Then we explore suitable products across both high street lenders and specialist companies. Our Mortgage Advisers even take care of your mortgage application, checking you have all the documents you need, well in advance.
We help with all mortgage products from residential loans to buy to let mortgages, second home mortgages and equity release. First Thought Financial Services Ltd is an appointed representative of Quilter Mortgage Planning Limited, which is authorised and regulated by the Financial Conduct Authority. To find out more about how we can help, call our registered office today.
Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.