Getting a Mortgage as a Limited Company Director

You might receive a salary through PAYE, take dividends from the company and leave some of the profit in the business. While that may be perfectly sensible from a business perspective, different mortgage lenders can interpret these figures in different ways.

The good news is that being a limited company director does not prevent you from getting a mortgage. The important part is finding a lender whose approach suits the way you pay yourself and being able to provide the right evidence.

For mortgage purposes, a director will often be treated as self-employed if they own a significant share of the company.

The shareholding threshold varies between lenders. Some may treat you as self-employed when you own more than 20% of the company, while others use a threshold of 25%. If your shareholding is below the lender’s threshold, you may instead be assessed as an employee using your payslips and other PAYE income.

Being a director does not therefore automatically mean every lender will class you as self-employed. Your shareholding, responsibilities within the company and the income you receive can all affect how your application is considered.

Yes. Limited company directors do not usually need a special type of residential mortgage.

You will generally have access to standard mortgage products, subject to the lender’s usual affordability and eligibility checks. The main difference is how your income is calculated and which documents you need to provide.

Lenders want to understand whether your income is sustainable. When you are employed by an unrelated company, this can often be assessed using payslips. When you own the business paying you, the lender may need to look more closely at the company’s performance as well.

Many lenders prefer limited company directors to have at least two years of finalised accounts. This gives them a track record from which to assess the company’s performance and the income you have received.

However, having only one year of accounts does not automatically mean you cannot get a mortgage. Some lenders may consider an application with one full year of trading, particularly if you have relevant experience in the same industry or a strong professional background.

The choice of lender is likely to be smaller, and the rest of the application will still need to meet its criteria. Starting the conversation early can help you understand what may be possible before making an offer on a property.

This is one of the biggest differences between lenders.

Salary and dividends

A common approach is to use the PAYE salary you receive from the company plus the dividends you have drawn. For example, if you receive a salary of £12,570 and dividends of £35,000, a lender using this method may assess an income of £47,570, subject to its own calculations and checks.

Where two years of figures are available, the lender may use an average. If the most recent year is lower, it may use that figure instead and ask why the income has fallen.

This approach may work well if you regularly take most of the profit from the company. It can be less suitable if you deliberately leave money in the business rather than withdrawing it as dividends.

Salary and company profit

Some lenders can consider your salary together with your share of the company’s profits instead of relying only on the dividends you have taken.

This can be helpful when the company is profitable but you retain some of that money within the business. You may do this to support cash flow, build reserves or invest in future growth.

The exact profit figure used varies between lenders. They may also consider your percentage shareholding, the financial health of the company and whether taking additional money from it would be sustainable.

A lender is unlikely to treat retained profit as readily available personal income without examining the wider business. Nevertheless, this method can sometimes provide a more accurate picture of your earning position.

What if your income or profits have increased?

If your income has grown over the last two years, many lenders will use an average rather than relying entirely on the higher, most recent figure. Some may consider the latest year where there is a clear and sustainable upward trend, but this will depend on their criteria and the strength of the accounts.

This is another reason why lender selection matters. Two lenders could review exactly the same business figures and reach different affordability results.

What happens if profits have fallen?

A fall in income or company profits does not necessarily mean that an application will be declined, but the lender is likely to want an explanation.

It may use the lower, most recent figure rather than a two-year average. The underwriter may also want to know whether the reduction was caused by a one-off expense, planned investment, changes in the market or an ongoing decline in trading.

Up-to-date management figures or an explanation from your accountant may help provide context, although not every lender accepts projections or management accounts as a replacement for finalised accounts.

What documents could you need?

The exact requirements vary, but limited company directors may be asked to provide:

• Finalised company accounts
• HMRC tax calculations, sometimes known as SA302s
• Corresponding tax year overviews
• Personal bank statements
• Business bank statements
• Recent payslips showing the salary paid by the company
• Evidence of dividends
• An accountant’s certificate or reference
• Proof of your deposit and its source

Your latest accounts will normally need to be reasonably current. Some lenders require the most recent accounting period to have ended within the previous 18 months, although the acceptable age varies.

It is worth checking your documents before applying. A tax return on its own may not be enough; the lender may specifically request the tax calculation and tax year overview confirming the income declared and tax due.

What if your dividends are higher than the latest profit?

Occasionally, a director may take dividends that are higher than the profit earned during the same accounting period. This could be possible where the company has retained profits from earlier years.

A lender may want to establish that those dividends were lawful and sustainable. It could request full accounts or an accountant’s explanation to understand where the money came from and whether similar income is likely to continue.

This does not automatically prevent you from getting a mortgage, but it may require a lender that is comfortable assessing the company in greater detail.

Some contractors operate through their own limited company but may be assessed differently from other company directors.

Depending on the lender and the nature of the contract, income could be calculated using a day rate or contract value rather than salary, dividends or company profit. A typical calculation may use the day rate, the number of working days each week and a set number of working weeks each year.

Contractor criteria differ considerably. Lenders may consider your industry, experience, the time remaining on the contract, any history of renewals and gaps between contracts.

If you are a day-rate contractor, it is worth exploring both contractor-specific and standard limited company director criteria to see which route presents your income most accurately.

Before applying, it can help to:

• Make sure your accounts and tax records are up to date
• Avoid making significant changes to your income without understanding the mortgage implications
• Speak to your accountant about any unusual figures in the accounts
• Keep personal and business finances clearly separated
• Check your credit reports for errors
• Build a clear record showing the source of your deposit
• Seek advice before submitting several mortgage applications

It can also be useful to consider your mortgage plans before your company year-end. Decisions about salary, dividends and retained profit could affect the income available for a mortgage assessment. Any tax decisions should always be discussed with a suitably qualified tax adviser or accountant.

There is no single best lender for every limited company director. The right option depends on your shareholding, trading history, salary, dividends, company profits and the amount you would like to borrow.

One lender may assess only the income you have withdrawn, while another may take a broader view of the company’s profitability. Matching the application to the right criteria can therefore make a significant difference.

At Crescent Mortgages, we can look at how your income is structured, explain the documents likely to be required and search for a lender whose approach fits your circumstances. Our mortgage advice is fee-free, so you will not pay us a broker fee for arranging your mortgage.

Your home may be repossessed if you do not keep up repayments on your mortgage.