Mortgages for Company Directors
Mortgages for company directors can be difficult to obtain, especially as many company directors are stakeholders too. However, with the right specialist mortgage broker and advice, there are plenty of lenders that will be willing to lend you the mortgage you require. Here at Davidson Deem, we have extensive knowledge and experience when it comes to acquiring mortgages for company directors. If you need help getting a mortgage as a company director, then give us a call today on 01202 884 111!
Mortgages for Company Directors
Mortgages for company directors are often assumed to be easily obtained, but in actual fact, it can be a struggle for many. This is because self-employed company directors can be seen as a risk as profits can fluctuate and they may hold back earnings for tax purposes. Additionally, each lender has their own requirements in granting mortgages for company directors such as the length of time that you’ve been trading for and some lenders will consider retained profits within the business, whereas others won’t consider any amount of retained profit. This is because if a company has a particularly bad year, they may need to tap into these retained profits, therefore, mortgage lenders won’t want to consider them as the risk of the business failing would be too high without retained profits. Mortgages for company directors are far from straight forward, however, the specialist mortgage brokers at Davidson Deem are here to help.
Trading History Requirements when Obtaining a Mortgage
Put simply, you need to have a minimum trading history of atleast 12 months to acquire a mortgage as a company director. Exceptional cases include professions such as doctors and if you can contractually prove that you have work coming in for the next few months. Ideally, you should also be able to show at least a years’ worth of tax accounts, however, if you’ve only been trading for a year, it’s unlikely that your trading history will span from April to April. In these cases, some lenders will require you to wait until the end of the financial year but there are some that will use a year’s worth of profits to provide you with your mortgage. However, in many situations it is preferential that you have at least three years of trading accounts to show your potential lender. Here at Davidson Deem we know each lenders requirements and therefore we can help you find the right lender for your specific case.
PAYE Income, Dividends and Retained Profit when Obtaining a Mortgage
This is where the process can get complicated. Your accountant will usually advise that you take a wage from your company up to the minimum tax threshold and the rest of your income will come from dividends from your share in the company. To acquire mortgages for company directors, some lenders will consider dividends, and some might not. Another mix in the equation is retained profit; companies can legally hold back from withdrawing profits for tax purposes and these profits will be left in the company bank account and not your personal account, which can have a big impact on the mortgage that you will be offered. If you’re a company director that is relying on retained profits, PAYE income and dividends for your mortgage calculations, then Davidson Deem can help you find the right lender for your financial needs.
Documents Needed for your Mortgage
Lenders will often obtain the information they need for your mortgage from your accountant. They will use a reference letter from your accountant who needs an accountant certificate to prove their qualifications. To hand out mortgages for company directors, the lender will receive documents from the accountant that will show net pay and profits received from the business every year. If there is a declining trend in profits through the years, then this can set off alarm bells with lenders and they may not be willing to take the risk in granting you a mortgage.
As with most businesses, profits will fluctuate with each year. In these circumstances, the lender will tend to use an average of two or three years’ worth of accounts to base your mortgage loan on which is a big reason in which lenders would like company directors to be trading for a minimum of three years.
Additionally, you will need documents from HMRC for information such as tax returns. However, many businesses will declare the lowest legal amount of net profit on their tax return to pay as little tax as possible which could hinder your mortgage application. Even if you have a huge turnover, lenders will not pay attention to anything but your net profit which is why it may be best to declare all your profits if you intend to apply for mortgages for company directors in the future.
Required Deposit as a Company Director
If you are eligible to receive a mortgage as a company director, then in most cases the usual rules of deposits and the mortgage loan amounts will apply. Usually, you should be able to acquire a loan to value amount of 95% and a loan figure of up to five times your net profit income, however, some lenders will require a larger deposit; having a 15% deposit should give you access to all the specialist lenders. Additionally, if you have an adverse credit rating, then in most cases, you will be required to produce a higher deposit amount.
Getting your Mortgage as a Company Director
Even though there are difficulties in obtaining mortgages for company directors, with the right specialist broker, there are many options open to you. Davidson Deem can work with all kinds of cases with company directors and we will find you lenders that will grant you a mortgage based on your circumstances. For more information and to speak to a qualified specialist mortgage broker call us on 01202 884 111. Alternatively, for popular questions read our FAQ’s below.
Can I get a mortgage if I am a company director?
Yes you can. The majority of lenders will only consider the money that you have withdrawn from the company as income so will, therefore, take your salary and dividends into account when assessing your mortgage application.
Can you get a home loan if you own your own business?
Yes, in fact, if you qualify for a loan with your own personal income but also own a business, then the business can be ignored in the underwriting. This is because many businesses won’t show a full income on tax returns which could hinder a mortgage application.
Can I use dividends for a mortgage?
Many mortgage lenders will not consider retained profit in their calculations, however, they will be willing to accept a certain level of dividends that you receive that can be supported by the profit from the business.
How much can I borrow self-employed?
If your mortgage application is accepted, as a general rule, whether you are employed or self-employed you can normally borrow a maximum of 5 times your certified annual income, however, many lenders will only consider a maximum of 4 times your net profit income.
Can I get a mortgage through my limited company?
Most lenders will not consider providing a mortgage to a limited company and will lend to individuals such as the company directors instead. However, there are few lenders that will and getting a property through your company may be beneficial if it’s a buy to let property as any income from rent will be taxed at 40% as an induvial but at a rate of 20% through corporation tax using your limited company.
How can I improve my odds of getting a mortgage as a company director?
If you’re thinking of applying for mortgages for company directors in the future, then there are a few steps that could increase your chances of being approved. You should lower your debt, declare more income instead of holding back for tax purposes, keep separate business and personal accounts, maintain good accountant records and consider making a larger deposit.