Limited Company Director Mortgage

Owning your own business can be hard work. That doesn’t mean applying for a mortgage as a limited company director has to be tough, too.

There are a significant number of limited company directors in the UK. Lenders don’t want to make it difficult for them to apply for a mortgage. With the right mortgage advice and some careful preparation, it should be perfectly possible to obtain a suitable mortgage offer.

What income can be used for a limited company director mortgage?

When assessing income from limited company directors, lenders will either use salary and dividends or salary and your share of profits in the company accounts. Using profits in the accounts can be advantageous, especially if you haven’t drawn much by way of salary or dividends.

It is important to research lenders carefully so you can be sure you are applying to one who accepts the kind of income you want to use. 

If income is increasing, lenders will typically take an average of the latest two years. 

If income is decreasing, they may use the latest year’s figures in isolation. You may have to provide more documentation to show the business is sustainable. If lenders think the company is on a downward spiral, they may not want to lend.

Proving your income as a limited company director

The longer you have been self-employed for, the easier it is to secure a mortgage. This is because you have more income history for lenders to work off.

Most lenders will need to see at least two years’ worth of earnings. This is to determine that your business, and your income from it, is sustainable. Using a qualified accountant is advisable.

Before applying for a mortgage, ensure that your financial records are in order. This includes up-to-date business accounts, tax returns, and bank statements. The more organised and transparent your financial records are, the smoother your application process will be.

It is also important to note that a lot of lenders can only accept income figures dated within the last 18 months. If your latest set of figures is over 18 months old, you will need to get up-to-date ones before applying for a mortgage. 

Salary (PAYE)

Lenders will treat you as self-employed if you own more than 20-25% of the business. The exact percentage depends on the lender you choose. As a self-employed person payslips will not be acceptable, even if you are an employee of your own business.

Instead, you will need to provide your tax calculations and corresponding tax year overviews for the past two years as a minimum. The lender may also require bank statements to confirm the income.

In some instances a lender may only accept an accountant’s certificate.

Dividends

Your tax calculations and tax year overviews will evidence any dividends you have taken. Again, the lender may require bank statements to confirm the income.

In some instances a lender may only accept an accountant’s certificate.

Retained profits

Two years’ worth of company accounts will be needed to show retained profits. The company accountant may also need to confirm your shareholding in the business.

Tax calculations and tax year overviews can evidence your salary. Accounts may not confirm it, especially if there is more than one director.

The lender might also request business bank statements to show current turnover. This is to reassure the lender that the business is on track to make at least a similar amount of money again in the current tax year.

What if your income fluctuates throughout the year?

Some businesses do experience peaks and troughs at certain times of the year. 

A mortgage advisor, such as ourselves, could be really useful here. As long as we understand the business and the reason for the fluctuations, we can help paint the picture to a lender to help reassure them.

More documents might be needed to support this, such as a year’s worth of bank statements or an accountant’s reference.