Can I get a mortgage as a company director?

More people are becoming company directors. Official statistics show that the number of companies grew last year to 5.7 million, meaning more people are now a director of a business.

But some directors – particularly new ones – may end up facing a struggle when it comes to mortgaging or remortgaging their home. That might seem odd – after all, being a director means you’re well paid, right?

Many company directors are not paid big salaries for tax purposes. Their income can be made up of salaries and dividends, which are not always a guaranteed sum. There are also directors who choose to be paid through retained profits.

It’s that complicated pay structure that mean some lenders feel it’s a bigger risk to offer a mortgage to a director.

So, what can directors do to secure a mortgage? Let’s take a look…

Why is it difficult to get a mortgage as a company director?

As we’ve briefly mentioned above, some directors are not only paid a salary for their income. Those that are probably won’t find a problem if they have a good credit history.

But for directors whose income is made up of a small salary with dividends, it may be more difficult. That’s because most high street lenders focus on salaries when assessing mortgage applications.

Recent data suggests that the average salary payment of UK directors was £15,710. By ignoring dividends and using only salary, it appears to be a small amount of income.

Dividends are often disregarded by high street lenders because they fluctuate. It’s seen as a bigger risk.

Some high street lenders class a director in the same way as they do the self-employed, who often struggle to secure a mortgage. Although directors are not self-employed, many mainstream lenders view them as such when assessing risk.

High street lenders will also shy away from offering a director a mortgage because they view small companies as less stable. A director will often be viewed as being most at risk should the company go under.

Directors may also already have secured debt on their home.Bank of England statistics show 42% of businesses have borrowing secured on a personal guarantee or residential property.

How can a company director find a mortgage?

In most cases, employees usually wait for about six months before they are likely to be approved for a mortgage. At The Mortgage Dog we have access to specialist lenders who allow a job offer letter, but you are right, most lenders need at least the first payslip and passed the probation period.

But company directors must prove their company has been trading for a year. (only a few lenders allow 1 year’s accounts, most are at least 2 and then they will take an average) Even then, you may have to show evidence of ongoing clients and projects. That’s because mortgage lenders want to ensure your company has future income.

Some lenders will require three years of accounts before making an offer. Many high street lenders do not see a director’s salary as an accurate picture of the health and profitability of the company.

Employees are often asked to provide three months of payslips and bank statements. Directors, however, are likely to be asked to provide:

• Two or three years of accounts

• Tax year overviews

• Company accounts

• SA302 tax calculations

Check out our guide on how to get them > https://themortgagedog.com/hmrc-income-documents

Some directors might also be asked to provide:

• Business bank statements

• Accountant’s certificates

So, you can see that while directors can secure a mortgage, you’re likely to need to do more homework before you apply.

Can I get a mortgage through my limited company?

Some company directors ask whether they can buy property through a limited company. A limited company can buy property but if you are buying your own home, it’s not usually the best option.

If the property is being bought as a buy-to-let investment, then that could be different. But buying a property through your limited company as your main residence could lead to tax consequences.

How to get a mortgage as a company director

If you are a company director, especially a new company director, then speaking to a mortgage broker is a good starting point. That’s because a broker can access specialist lenders who are used to dealing with company directors including access to lenders that allow using the latest years figures rather than an average or if you only have one year’s trading history..

As we’ve already mentioned, high street lenders often see a director as a bigger risk than an employee. And while they may offer you a home loan, the terms may not be as advantageous as a specialist lender.

A lender who understands your complex income is more likely to agree to offer a mortgage.

We are a mortgage broker who has experience of dealing with directors. Speak to our advisors today for help.