Limited Company Director Mortgage

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Limited Company Director Mortgage

Limited Company Director Mortgage

Scott West talks us through limited company director mortgages and answers some frequently asked questions.

Are there mortgages tailored to limited company directors?

There aren’t particularly mortgages for people who run their own businesses, but there are two groupings of mortgages: regulated and unregulated. Regulated mortgages are for someone buying their own home to live in. Unregulated mortgages are more commercially focused, including Buy to Let which I’m going to cover off today. We can come on to the regulated type another time. 

When it comes to being a director of a company, your income is your income. It doesn’t really matter where it comes from – whether you are in an employed role or a company director role. Once the income has been declared and it can be seen on a tax calculation or payslips, it doesn’t really impact your product or lender choice.

How do I prove my income or document my trading history?

The majority of lenders will have a minimum income level required for a Buy to Let landlord, on the presumption that you’re an experienced landlord. Some have varying levels of income required, depending on how experienced they think you are.

Proving your income is straightforward if you’re employed – you just need a few payslips. But if you are a company director and shareholder, you probably draw out some income and some dividends from the business. That means tax calculations and tax year overviews are critical. Those are the first things the lender will ask for when they deem you to be self-employed – which in this scenario, they would. 

You’re self-employed even if you have your own company and pay yourself a salary. Your accountant will probably do those tax documents for you and they can be downloaded on the HMRC website. Usually lenders will ask for the most recent two or three years.

Do dividends count as income for a mortgage?

Yes, they will. That’s a short and sweet answer. Lenders aren’t really looking for affordability in your own income level when it comes to Buy to Let. It’s just checking that you are able to live independently without the income from the Buy to Let.

What if I have a fluctuating income?

It doesn’t really matter too much. If there’s a huge variance they might ask for further income history. They might ask for two or three years, maybe four or five years if there’s a lot of fluctuation. Realistically, as long as you’re meeting the minimum level for the lender, they probably won’t ask many questions.

What about pay as you earn (PAYE) income?

That’s what most people listening to this will be earning. It’s the income stated on a payslip each month. So we just provide those payslips and the lender will be happy with that.

What about retained profit?

Retained profit can also be used. If, for example, you were going for a Buy to Let mortgage and you’re a relatively new landlord or a first time landlord, some lenders might have a minimum requirement of £25,000 or even £40,000 of income. 

If you have a limited company and you only need to draw out £20,000 a year, you wouldn’t meet their lending requirements. But if your company has profits within the business, you can use that. We can demonstrate that using company accounts for the last year shows that profit retained – and that your income is also affordable going forward.

How much can I borrow and what sort of deposit will I need?

These products will be the same as every other Buy to Let product, essentially. There’s no real difference. The standard is 75% mortgage, 25% deposit, but that does fluctuate. There are a few lenders doing 80% now, but the general rule of thumb is a 25% deposit.

How can a mortgage broker like Propertyze help somebody who is looking for a mortgage as a limited company director?

Firstly, if your income is more complicated we can definitely add value there. We’ll just help you understand the details and package your situation for a lender. 

When it comes to limited company applications, new property purchases will likely be in a limited company – so you will need a broker to go through that with you and explain the differences. 

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

The Financial Conduct Authority does not regulate most Buy to Let Mortgages.