Limited Company Director Mortgage

How does the mortgage process work for a limited company director?

It’s not really too different from applying for a mortgage if you were employed. Lenders will assess you in exactly the same way and the same deposit limits apply.

The only extra step is in assessing the income you’re taking from your limited company. We’ll assess the company accounts and your company as well. There’ll be some extra paperwork and checks on your business finances, but otherwise, it’s exactly the same.

Are there any specific mortgage products designed for limited company directors?

While there aren’t any products designed for limited company directors, certain lenders like to lend to this audience. They may have criteria aimed towards you as a limited company director.

You can access exactly the same residential or Buy to Let products as any other applicant. The key difference is how your income is assessed – the income you take from the company, your personal income, plus the company’s financial situation will all be looked at.

Do many lenders offer mortgages to limited company directors?

Yes, most lenders will lend to limited company directors as long as the numbers and the circumstances stack up. You will have a choice of lenders, but some do like to work with limited company directors more than others. They could offer a slightly easier process or favourable options for you as a limited company director around how long you’ve been trading, for example.

What are the eligibility criteria for obtaining a mortgage as a limited company director?

Most of the time, you’re going to need at least two years’ trading history as a limited company. That allows the lender to assess your company, the accounts and the trajectory of where your business is going.

Some lenders will lend with just one year’s accounts, but it depends on some key things, such as your previous experience, the business performance, your credit history and the size of the deposit you’re putting in.

Lenders are trying to understand the risk associated with your business and how likely it is that something could go wrong. It’s not always as straightforward as viewing the most recent accounts. Some lenders might take an average of two or three years of your accounting history.

If your recent accounts are not as good as the year before, they may just use the most recent year, to base it on the worst case scenario. In terms of eligibility, everything else is the same. It’s just how your income and your company are assessed that are different.

What documents are required to apply for a mortgage as a limited company director?

I highly recommend working with an accountant to look after your accounts. It makes it a lot easier and it gives you more credibility with lenders if you have a professional accountant looking after your numbers.

Lenders want to see at least the last two years of trading history – your profit and loss accounts and balance sheets. Some lenders might even ask for three years’ records to make them comfortable with what they’re lending, depending on how much you want to borrow.

Lenders may also want to see your personal tax returns – your tax calculations and tax year overviews. That helps to verify that the income you’re taking matches the accounts.

We also then need standard things like your business and personal bank statements, your ID, proof of address and evidence of your deposit. There’s a lot more paperwork to sort out as a limited company director, but it’s worth getting it right.

How do lenders assess the income of limited company directors for mortgage purposes?

There are a couple of different ways lenders assess it, and each lender will have their own set of rules or criteria. Often they use a combination of the salary you’re taking from the business plus any dividends that you draw down. That’s usually how most limited company directors pay themselves.

But there are also lenders who look at the salary that you’re taking, plus your share of the net profit. You could be taking your salary but you could potentially take a larger portion of the profit that’s sat in your company.

How we approach this will depend on what you’re trying to do. We would look at all the numbers to decide how best to get you the amount you want to borrow.

How do lenders view dividends and retained profits when considering a mortgage application from a limited company director?

It’s fairly standard to look at dividends when taking out a mortgage. Retained profit from previous years can be more tricky for lenders to consider, particularly where the dividends you’re taking now are higher than the profit you’re making.

There are some nuances in terms of how your profit is displayed together with historical profits that need to be factored in. Not all lenders will use your historical retained profits.

Each lender has a slightly different way of calculating it as well. It’s worth speaking to a broker to get an understanding of this, and talking to an accountant to make sure you get your numbers right.