Being your own boss means you’re used to feeling in control – but that can make it more frustrating when mortgage providers don’t offer you what you think you deserve.
It’s not difficult to find Limited Company Director Mortgages, but it often takes expert advice to get good rates and higher loan amounts
As long as you have fairly good credit and your business has been performing well for a year or two, it should be easy to find a mortgage. The challenge is that different mortgage lenders can vary widely in what they might offer you.
Every lender will calculate your annual income in a different way, so the total loan can be quite unpredictable. Other challenges that can present themselves are:
The minimum deposit anyone can put towards a mortgage is 5%. But with a small deposit you have a high loan-to-value ratio, which means mortgage interest rates will be high and your monthly repayments more expensive. You will also need a very good credit rating for a 5% deposit mortgage.
Putting down a larger deposit of 15% or more will get you more competitive rates and bring down the repayments on your mortgage. If you have adverse credit you will certainly need at least 10% deposit – or more depending on the severity of your prior debts.
Lenders will look at your income to decide much to loan you. But many Company Directors take a low salary for tax reasons and pay themselves dividends from the company. Your low income can mean that your mortgage offer is much lower than you might hope for.
If you can find the right lender, they may base the loan amount on your company’s retained profit instead of salary and dividends, meaning you can borrow much more.
The way you prove your income will depend on the lender’s requirements. You can expect to supply company accounts, tax returns and bank statements as a minimum.
A company director mortgage will often require at least two to three years’ trading history for your business. So you will need to provide evidence that your business has been operating for the stated time.
Often this means sharing certified company accounts for each financial year. If business performance has declined in recent months, but you have good prospects coming up, it can help to share details of new contracts or deals with the lender.
It will be more difficult to find a mortgage If your business has made a loss in the past three years, especially with a high street lender. The best plan in this situation is to seek advice before making any property commitments.
It’s quite common for company directors to have a variable income, because they have an unpredictable flow of work or they take dividends on an irregular basis.
This irregular income can make a lender feel that you are a riskier customer, and they will often take an average annual income across 2-3 years of trading in order to calculate their offer.
You might choose to take more money out of the business in the months before applying for a mortgage, as a way of increasing this income calculation.
Finding a limited company director mortgage can be challenging – especially as you will need to compare lots of products to find the most suitable deal. At Momentum our mortgage advisors can take the stress out of buying a home.
We will explore your specific situation, your business and your property goals, and explore the offers from both high street brands and specialist lenders to make a recommendation.
Once you have made an informed decision, we will make sure you have all the documentation you need to start your mortgage application. We can also explore relevant mortgage protection products that might be important – such as life insurance, critical illness cover and income protection.
As a limited company director, you’ll need to be able to provide information on your income as part of your mortgage application. This includes the salary and/or dividends you’ve withdrawn from your company, the net profit of the business, and proof that your income can be considered stable.
While your application is slightly more complex than usual, our specialist mortgage advisers are here to guide you. After all, we know the ins and outs of finding a mortgage in these circumstances! By assessing your unique requirements, we’ll be able to find the competitive deals to suit your needs.
Lenders will typically expect your company to have been trading for at least two years. But some will consider one-year trading along with future income projections.
You will also need to provide:
If you have less than one year’s accounts, unfortunately lenders are unlikely to consider you, However one of our core values is preparation and what we can do is help you to plan for your mortgage journey. That’s why we offer a free strategy call so we can discuss your business and what you need to do to make your application look as positive as possible.
A couple wanted to buy their dream home. They were both self employed with one being the company director and shareholder and the other working for the business as a contractor. See how we got them their mortgage when their income on paper was low for tax efficient purposes.