Limited Company Director Mortgage
Limited Company Director Mortgages – A helpful guide
Mortgages for limited company directors can be harder to secure in some instances, but they are available if you know where to look. Company directors will go through a very similar process to everyone else when applying for a mortgage and there aren’t really any specific things that you need to do or follow, but that being said, it still helps to understand the process.
Documenting Your Trading History
It’s likely you’ll need to have been trading for a minimum of 12 months if you want to secure a mortgage. The only exception to this is if you are a doctor, or another professional who may be eligible with a lower trading history. If you want to go down this route however then you will need to provide contracted evidence of your future income. Ideally you will need to have a tax years’ worth of accounts.
If you know that your trading year spans across two tax years, which quite often happens, don’t worry, your accounting year doesn’t need to match the tax year.
What About PAYE Income?
If you receive PAYE from your limited company then your mortgage lender may consider the gross level of the payments you get, for the purpose of your mortgage. Many limited company directors are advised by their accountants to take a minimum level of PAYE and take their payment in dividends. This is where some complications can arise when proving income.
Dividends are a share of your profits and they are paid to shareholders by the company. In a smaller company, the board of directors will be shareholders and therefore dividends remain to be the natural way for you to be paid your income. Dividends are however subject to income tax and they will be considered part of your income by mortgage lenders.
If you are a limited company and you make a level of profit which is not taken as dividends by the shareholders, then this could be considered as retained profit. Mortgage lenders can be wary about this, as the view is that the profit has not been declared as being a dividend. If you have a difficult trading period, then this could swallow up the profit and therefore the money is not always yours as a shareholder.
A handful of mortgage lenders will consider dividends, PAYE and retained profit from the company. Each lender’s approach will differ here. The majority will consider retained profit after tax has been allowed for.
This can leave a hole that could take up around 29% of your usual income. There are some lending providers that will take into account retained profit before tax and this is usually a much more useful approach.
How Do I Prove My Income?
Limited companies will often use an accountant. This is where lenders will often get all of the information they require to underwrite the mortgage. Sometimes your lender will ask for three years’ worth of accounts for your business. This accountant’s reference has to be provided in a very specific form, e.g. an accountant’s certificate.
This will usually require details of PAYE and any dividends which you have received. If lenders happen to see a trend of falling profit, then this may be cause for concern and it might affect your ability to take out a mortgage.
There are some lenders who may specialise in this area. Speaking to a mortgage broker can help you navigate through the process to find the right lender for you in this circumstance.
What If I Have Fluctuating Income?
Varying profit can make all the difference to your application. If you have a dip in profit, then you need to explain this to the lender so that they can handle the situation in the right way. If you have a sudden rise in profits then this can be a consideration as well. This is why most mortgage providers take the average of your last two or three years when assessing your affordability.
For the most part, eligible limited company directors will be treated in the same way as any other borrower. You may be able to take up to 95% of your loan to value (LTV) but lending criteria can frequently change.
Things can also change when you use a specialist lender because they mitigate any increased risk against bigger deposits and therefore a lower LTV.
If you have a 15% deposit then you may have access to most specialist lenders. If you have adverse credit then this doesn’t mean that you won’t be accepted but it does mean that you may need to put down a higher deposit.
If you want to explore your options for securing a mortgage, then please contact us. When you do, you can then count on us to give you all the support you need with your application.
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