Mortgage Guide for Company Directors

If you’re a company director and want to secure yourself a great mortgage, then you might have already discovered that it’s not as straightforward for company directors as it is for someone on PAYE.

With company profits, dividend allowances, and the overall company health, there is a lot for lenders to evaluate and assess when it comes to approving a mortgage for a company director.

But don’t worry – there’re plenty of mortgage products that company directors can benefit from.

Whether you’re applying for your first mortgage as a company director or are looking to remortgage, in this article we cover everything you need to know about securing a mortgage as a company director. Let’s begin.

Does a Company Director Get a Better Mortgage?

While being a company director has its perks, there is no clear advantage for company directors looking to secure a mortgage. In fact, due to the complexities of income and company dependency, it can make your mortgage application slightly trickier.

Most lenders will see company directors as self-employed and so your primary concern for any mortgage application will be to provide clear evidence of your income and financial profile.

What Are the Lender’s Criteria for Company Directors?

When applying for a mortgage as a company director, should you own 25% or more of the company, lenders will assess your finances in a similar fashion to self-employed borrowers.

The primary focus for lenders is to build a full and accurate picture of your income, the health of your business, your financial standing, and ultimately – your ability to reliably repay the loan.

As a self-employed company director – especially in a limited company – you may have income from a variety of different channels, including dividends, salary, and retained company profits, and not every lender looks at these all of that the same way.

It is natural for most company directors to act in the most tax efficient way possible. This would usually mean earning the tax-free threshold in salary, and then choosing to withdraw dividends for any additional income.

Crucially, most lenders will accept both your salary income and any dividends that you earn to be assessed in your overall income. However, there are lenders who will refuse to accept any additional funds outside of this, including company profits.

How does this look?

• Your company earns £300,000 in annual profits.
• You earn £12,500 annual income from salary
• You withdraw £50,000 additional annual income from dividends

Irrespective of the company profits, most mortgage lender criteria will view your total income as £62,500.

In addition to your income, lenders will generally look at the following aspects of a company director’s application:

Trading History

Just as with any self-employed mortgage, most lenders will ask for at least two years of trading accounts to ascertain the health of your business and your likely earnings year to year. Specialist lenders may consider one year’s worth of accounts, but as a general rule of thumb, the more evidence you can provide on your financial stability, the better your application will be.

Income Stability

Predictability is the game when it comes to lender’s assessments. All lenders are looking for a consistent and stable income over a long period of time. Any large fluctuations in earnings from one year to the next, or unpredictable rises and falls in your business, will naturally make them cautious.

Declared Income

Your income will need to be verifiable through your SA302s, tax year overviews, and company accounts.

Personal and Business Credit Scores

When applying for a mortgage as a company director, it is common practice to have both your personal credit score and any company or business accounts checked. This is to provide the lender with insights into the current health of your company’s finances.

Understanding the lender’s mortgage criteria can help you prepare your application ahead of time – especially if you’re looking to secure a mortgage in the future.

It is worth taking note that some lenders are more flexible than others and each lender will have their own unique criteria. As such, working with a trusted broker – like Boon Brokers – can help you understand exactly what lenders best match your mortgage requirements, and allow you to access the most competitive mortgage rates.

How Much Will I Need for a Deposit Amount?

The required amount you need for a deposit is no different than any other standard mortgage application.
Generally, lenders will expect deposits of around 5% to 10%, but this can vary depending on your credit score and total income.

For example, if your annual income is low lenders may ask for a larger deposit amount to reduce their risk. Similarly, if your credit score is poor, lenders may interpret your financial profile as high-risk, requiring a higher deposit amount to reduce any financial risk.

On the other hand, If you’ve got a clean credit record and a proven record of high income stability, you will likely be able to access a lowest deposit mortgage deal.

Strictly speaking, the answer to “How much do I need for a deposit?” is wholly down to your financial situation. However, by putting down a larger deposit, lenders will be more likely to offer you more attractive deals with competitive interest rates.

But putting down a bit more can help you get better rates, as lenders usually reward lower risk with more attractive offers.

How Will Lenders Treat My Income?

As we mentioned in the above section “What Are the Lender’s Criteria for Company Directors?”, when you apply for a company director mortgage, one of the most important factors that lenders will assess is your income.
Because your income as a director can come from multiple sources, lenders are likely to treat each type differently.

Here’s how lenders usually approach company director income:

• Salary Income: If you’re paying yourself a salary through PAYE, this amount will be included in your income assessment.
• Dividends: Most lenders will include dividends in their assessment. However, up-to-date documentation of this will have to be provided. Ensure that any dividends that you receive are regular and documented in your accounts and SA302 forms.
• Retained Profit: Specialist mortgage lenders for limited companies will also include retained profits in your business. money left in the company that hasn’t been drawn as salary or dividends. It is important to note that many high-street lenders will not accept retained profits in their assessment.
• Net Profit: If you operate as a sole trader or in a partnership, specialist mortgage lenders may accept net profit instead of salary/dividends. However, most high-street lenders will not.

Most importantly, lenders always want to see consistency and reliability in your income. If your income and the financial prospects of your company have recently dropped, lenders will assess the most up-to-date financial records which could reduce how much you can borrow.

Working with a trusted whole-of-market broker who has access to a wide-range of lenders is vital in finding the best mortgage deal that fits your requirements.

Will Trading History Affect My Mortgage Availability

Simply: Yes.

Trading history will directly affect your mortgage application as it will provide lenders with records of your business’s financial stability and forecasted financial success.

Most lenders will want to see a minimum of two years of accounts.

Can I Still Get a Mortgage with Less Than a Year’s Trading History?

If you’re a new business and do not have a long financial history to draw upon, then working with a mortgage broker to find a specialist lender with a more flexible lending criteria could be your best option.

Naturally, the less evidence you can provide relating to your financial stability the higher-risk you will be to lenders. As such, it is likely that you’ll need to have a bigger deposit and a strong personal credit score, but with the right advice, you can secure a mortgage with less than a year’s trading history.

Can a Company Director Use Remortgage to Raise Capital for Their Business?

The short answer: Yes. It is possible to remortgage in order to raise capital for your business.

The long answer: Lenders will typically ask for a clear plan and supporting documentation that correspond to what your capital will be used for. Placing capital into your business can often be considered as a high-risk endeavor for lenders, and so this practice is not very common.

Because of this, many lenders will refuse remortgage applications for company directors who are solely looking to remortgage to raise capital in their business.

How Much Can a Company Director Borrow?

The amount you can borrow as a Company Director will directly depend on how your chosen lender assesses your total income, your credit history, and any outstanding financial commitments.

While most lenders will use a typical income multiplier of between 4 and 5 times your annual salary, there are specialist lenders who may offer increased borrowing power.

Let’s break down what a standard and high-income amount can look like:

• Standard Lending Multiples

It is standard for a lender to offer a borrowing multiplier of 4.5x your annual income.
For example, if your total income is £52,500 (salary and dividends), you would likely be able to borrow an amount up to £236,250.

• High-Income Borrowers

Should you have an excellent credit score, minimal debt, and a high income, some lenders may increase their borrowing multipliers up to 6 times your income.

For example, if your total income is £150,000 (salary and dividends), you would likely be able to borrow an amount up to £900,000.

It is important to note that every lender will have their own criteria and multipliers. Working with a whole-of-market broker can help you find lenders who specialise in providing company director mortgages, ensuring you get the maximum borrowing power and the best interest rates that are on the market today.

Speak To Our Specialised Mortgage Broker

While getting a mortgage as a company director definitely has its complexities to navigate – it doesn’t have to be stressful.
At Boon Brokers, our expert advisers make it simple.

We specialise in Company Director Mortgage options and know exactly what lenders are looking for.
We operate as a no-obligation, fee-free mortgage adviser – that’s how you know that our advice is always impartial and focused on getting the best deal for you.

So whether you’re at the beginning stages of looking into a mortgage, or ready to apply, we’re here to help you secure the best mortgage deal that is tailored to your needs.

Contact Boon Brokers and get your mortgage for a Company Director today.