Limited Company Director Mortgages

Mortgages for directors made easy at Strive Mortgages

Mortgage lenders tend to view self-employed borrowers, including directors, as high-risk because their income can be unpredictable and may fluctuate from year to year. Additionally, self-employed borrowers may have more complex financial situations than those who are employed by a company. This can make it harder for lenders to assess their income and affordability.

As a result, it’s important for directors and other self-employed individuals to prepare thoroughly before applying for a mortgage. This can include ensuring that their accounts and financial records are up-to-date and accurate and that they have a good credit history. It is also worth speaking to a specialist mortgage broker who can help find lenders who are more likely to consider mortgage applications from self-employed borrowers.

At Strive Mortgages, we have a wealth of knowledge and experience dealing with company-owner mortgages.

How long have you been trading?

The length of time a self-employed individual has been trading is a crucial factor that lenders consider when assessing mortgage applications.

Generally, the longer the trading history, the more stable and established the business is considered to be, which makes it less risky for lenders to offer a mortgage. This is particularly important for directors, as their income and financial situation may be closely tied to the performance of their business.

Therefore, if you’re a director looking to obtain a mortgage, it’s important to have a solid trading history and to be able to demonstrate the financial stability of your business over a period of time.

Less than 1 year

In most occupations, you will really struggle to get a mortgage with less than 1 year of trading history.

However, if you’re a self-employed contract worker with future contracts booked, you may be able to secure a mortgage with less than a head account. Self-employed construction workers employed on the CIS scheme may be able to qualify for a mortgage with as little as 3 months trading history. Yes, months, not years.

1 year self-employed

Yes, it’s possible to get a mortgage if you’ve been self-employed for just one year, but it can be more challenging than if you had a longer trading history or were employed. Lenders may require additional evidence to assess your affordability and eligibility, such as bank statements and tax returns.

Some lenders specialise in self-employed mortgages and may have specific criteria for applicants with limited accounting history.

2 year self-employed history

Having two years of accounts can make it easier to get approved for a mortgage, as it shows a longer trading history and more stability in your income.

Having three years of accounts should provide you with access to every lender, assuming you meet the rest of the lender’s criteria.

How much deposit will I need?

It’s important to note that the deposit required will also depend on the lender’s specific criteria and the overall risk assessment of your application.

Some lenders may require a larger deposit if they consider your application to be higher risk, while others may offer more flexible deposit requirements based on factors such as credit score, income, and trading history.

The mortgage products available to self-employed applicants are exactly the same as anyone else; when we talk about self-employed mortgages, we are referring to the specialist criteria and underwriting involved rather than specific products.

It’s, therefore, possible to borrow with as little as a 5% deposit, subject to you meeting the rest of the lender’s criteria and being able to borrow enough.

How much can a director borrow?

The amount you can borrow will depend on your specific circumstances. Mortgage lenders differ in their treatment and assessment of self-employed income.

Some mortgage lenders use the company’s retained profits and salary, others will use salary dividends; this can make a huge difference to the amount you can borrow. Some lenders will average your most recent two- or three-years income, whilst others may consider lending based on the recent year’s accounts.

This can make a massive difference, especially if your income has varied considerably. Generally, lenders will typically consider lending between 4.5 and 5 times your income.

Company owners that one less than 20-25% of the company

If a company director owns less than 25% of a company, the lender will typically consider them employed. If they own more than that, they will typically be considered self-employed.

If you own less than 20-25% of the company, lenders will generally only require 1-3 month’s payslips.

Applying for a mortgage with retained profit in a limited company

Only a handful of mainstream lenders consider lending based on the company’s retained profits. There are specialist lenders that will consider retained company profits.

By considering company profits instead of just personal income, lenders can offer a much higher maximum mortgage amount. This is especially beneficial for self-employed individuals who may have low personal income due to tax planning but have a healthy level of retained profits in their company.

However, it’s worth noting that not all lenders will consider retained profits, and the amount they will consider can vary between lenders. As a company owner when you apply for a mortgage, you’ll need to provide evidence of your income and trading history.

The specific documents required can vary depending on the lender and the type of mortgage you’re applying for, but generally, you’ll need to provide:

• SA302 forms or Tax Calculations: These documents show how much income you’ve declared for tax purposes over the last two to three years. You can get these documents from HM Revenue & Customs
• (HMRC)Company accounts: You’ll need to provide your company accounts for the last two to three years. You can get these documents from Companies House.
• Bank statements: Lenders will typically ask for your personal bank statements for the last three to six months, as well as business bank statements if you have them.
• Proof of ID and address: You’ll need to provide proof of your identity, such as a passport or driving license, and proof of address, such as a recent utility bill.
• Contract evidence: If you’ve only been trading for a short period of time, you may need to provide contracts or invoices to show evidence of your future income.

It’s important to note that different lenders may require additional documentation.

Limited company director mortgage calculator 

There is no set calculator for assessing mortgages for limited company directors because each lender has its own criteria for assessing affordability. Some lenders may use the latest year’s income, while others may average the income over two or three years. 

Some lenders may consider retained profit, while others may focus on salary and dividends. Loan-to-income multiples can also vary between lenders. To navigate this complex landscape, it is often best to work with a mortgage broker who can help you find a lender that is a good fit for your individual circumstances.

Mortgages for directors with bad credit

Getting a mortgage as a  company director with bad credit can be challenging, as many mainstream lenders may not consider your application. However, there are specialist lenders who offer mortgages to individuals with bad credit, including company directors.

When applying for a mortgage as a company director with bad credit you will typically need to provide more documentation than someone with good credit. This may include bank statements, tax returns, company accounts, and evidence of income. You will also need to explain any credit issues on your record and provide evidence of how you are working to improve your credit.

Overall, while it may be more difficult to get a mortgage as company director a with bad credit, it’s not impossible. By working with a specialist mortgage broker and providing the necessary documentation and evidence, you may be able to find a lender willing to offer you a mortgage.

Companies that have made a loss

If your company has filed a loss within the last two years, then mortgage approval can be harder to come by. This is because lenders will typically use your net profits to assess your affordability and determine the amount you can borrow. If you have negative net profits or have made a loss, this will reduce the amount of money you can borrow.

However, some lenders may take into account other factors, such as retained earnings or future income projections, when assessing your affordability.

Borrowing using your most recent years’ figures

If your company has had lower earnings in the startup years or had unexpected expenses, this could impact your ability to borrow when applying for a mortgage.

Lenders will typically assess your company’s income over a certain period of time, usually three years, and use an average to determine how much you can borrow.

If your company had lower earnings or higher expenses in one or two of those years, it could lower your average income and affect how much you can borrow. This can be especially challenging for new businesses that may have lower earnings in their first few years of operation.

One way to address this issue is to provide additional information to the lender that explains the reasons for the lower earnings or higher expenses in those years. This could include a business plan, cash flow projections, or a letter of explanation from an accountant.

Another option is to work with a mortgage broker who can help you find lenders that are more flexible with their income assessment criteria. Some lenders may be willing to consider your current income and future prospects, rather than just the historical average.

For example, take a look at the scenario below:

• First-year: £10,000 net profit
• Second-year: £20,000 net profit
• Third-year: £60,000 net profit
• Lender 1 – £135,000 borrowing based on 3 year average net profit – 4.5 times income
• Lender 2 – £270,000 borrowing based on latest years net profit – 4.5 times income

The specialist lenders that we have access to may only require your most recently filed account. This makes a significant difference to the borrowing amount.

Best Limited company director rates 

The rates available for limited company directors will depend on a number of factors, including the size of the deposit, the individual’s credit score and financial history, the type of mortgage product chosen, and current market conditions. 

While there are no specific mortgage products designed solely for limited company directors, some lenders may have more lenient criteria or offer more flexible mortgage products that may be suitable for those who are self-employed. It’s best to speak with a mortgage broker to determine what options are available based on your individual circumstances.

Who are the best lenders for limited company director mortgages? 

The best lender for you will depend entirely on your circumstances. If you’re looking to use company profit for income instead of salary and dividends, lenders like HSBC, Barclays, Metro, Coventry, and Virgin may be suitable as they consider this approach to give favourable affordability. If you have had fluctuating income in previous years and prefer a lender that considers your latest year’s income instead of averaging 2 or 3 years, then lenders such as Precise, Coventry, The Mortgage Lender, and Vida
may be more appropriate 

Halifax Limited company director mortgages

Halifax will usually take an average of the last 2 years’ salary and dividends for income purposes if your income is stable or increasing. If it’s decreasing, they will take the latest year’s income instead of averaging it. They also consider applications with just 1 year of self-employment, but they usually prefer a track record of employment in the same line of work. 

HSBC Limited company director mortgages

HSBC will consider using net profit plus salary if you are the sole director of a company, which can be more favourable than using just salary and dividends. They usually take an average of the last 2 years of income if it is increasing or the latest year if it is decreasing.

Santander Limited company director mortgages

Santander will usually take an average of the last 2 years’ salary and dividends for income purposes if your income is stable or increasing. If it’s decreasing, they will take the latest year’s income instead of averaging it. 

Coventry Building Society Limited company director mortgages

Coventry considers the latest year’s income, which can be beneficial if you’ve had an increase in income during that year. They also consider net profit after corporation tax instead of salary and dividends, which could result in you being able to borrow more.

Why choose Strive Mortgages?

Self-employed mortgages are our speciality. It’s important to work with a mortgage advisor who has experience dealing with self-employed applicants and can help you navigate the mortgage application process.

A good mortgage advisor can help you prepare your documentation, find lenders that are more likely to consider your individual circumstances, and negotiate on your behalf to secure the best possible mortgage deal.

As each situation is different, it’s important to have a personalised approach when applying for a mortgage as a self-employed person. 

Strive Mortgages can provide you with tailored advice and support to help you find the best route to getting approved for a mortgage, get in touch with us today.

For more information on limited company director mortgages, please contact a member of the Strive team, by emailing info@strivemortgages.co.uk or call us on 01273 002697.

 Frequently asked questions about limited company director mortgages