Getting a mortgage as a company director
Company directors can often struggle when getting a mortgage. This is mostly because as a director your salary will likely be made lower in order to prioritise the business capital.
Your accountant has most likely recommended that you take a salary that’s within the tax-free or lower tax threshold, with the rest of your income in the form of dividends. This means that you can avoid paying a high amount of tax by keeping this money within your business instead.
Because of this, your income may have also been regularly altered, which makes it less clear to lenders what your actual earnings are.
To be considered for a self employed mortgage, you must provide the following documentation:
- Two years worth of accounts
- Evidence of your earnings through a SA302
- A full trading history
If you don’t have all this information, it’s still worth applying with us as we have relationships with lenders who will base their decision on the information you provide.
Your business type
The type of business you have might affect also your mortgage application. You should be aware of the following:
If you’re a sole trader, it’s likely that you’ll need to supply a tax self-assessment. The HMRC can do this calculation and provide you with an SA302. This shows your income and corresponding tax that is due.
As a partnership, you will need to provide evidence of the share of the business profit you receive. This is so the lender can review the business accounts and see the money you receive from the total business income.
As an owner of a limited company, you are typically an employee of the company that receives a salary as well as a profit dividend. It’s important that you make sure the accounts that you submit reflect both salary and dividend to give the lender a true reflection of your income.
Mortgage approval for company directors
High-street lenders operate in a way where your mortgage is based on your income, not what your company makes. Because of this, they will only consider your personal salary when making a decision on what you can borrow.
Proving to lenders that you have a steady income and can comfortably afford the mortgage repayments is essential as a company director. Using a mortgage broker who can give you access to the right lenders is the best chance you have at getting mortgage approval.
Other things you should consider when getting a mortgage:
Your deposit amount
The more money you can use towards your deposit, the more likely you are to get approval for your mortgage. This will lower your LTV (Loan to Value), reducing the amount that you will need to borrow from your lender.
Lenders will look at your credit file before they look at anything else, so it’s a good idea to check your report before applying. This will give you an indication of what types of rates you will be eligible for. We recommend that you check your credit score with a reputable credit company such as Experian or Check My File.
If you do have bad credit,
Your account can be a big help when it comes to applying for a mortgage. They have access to your accounts and can help you collect the information you will need to supply. If they hold a chartered status, many lenders will also accept the accounts they provide as evidence of income.
Why Clever Mortgages?
At Clever Mortgages we can offer you the support and advice required to ensure you get the right mortgage for your first home. We provide access to a comprehensive range of mortgages from across the market. We are also authorised and regulated by the Financial Conduct Authority (FCA) and adhere to the Treating Customers Fairly (TCF) guidelines, so you can be confident that we will treat you with integrity and only recommend products that meet your needs.
A fixed rate mortgage is where your interest rate stays the same for a set time period (usually between 2-10 years). As a result your repayments are exactly the same each month, regardless of what happens to other mortgage rates. These types of mortgages are popular with first time buyers and people looking to budget each month, especially those who have suffered from a poor credit history.
The main downside to a fixed rate mortgage is that if mortgage rates go down you can be paying a higher amount than you would on a variable rate mortgage. However, this can also go in your favour and if interest rates increase you can be paying less than you would on a variable rate.
Every lender will have their own standard variable rate (SVR), which is considered their basic mortgage. This interest rate goes up and down, usually in line with the Bank of England’s interest rates but the lender is free to raise this at any time.
This means that your monthly payments can go up or down depending on what the interest rate is at a given time. Some months you could be paying more whilst other months you could be paying much less.
A discount mortgage is when a reduction is applied to the lenders Standard Variable Rate (SVR) for a certain length of time (typically 2-3 years). Discount mortgages are attractive as they can allow you to pay slightly less than the bank's standard rate. However as the SVR can still fluctuate they are not ideal for people who are looking to stick to a strict long term budget.
A tracker mortgage is basically a type of variable rate mortgage. What makes them different from other variable rate mortgages is that they follow – track – movements of another rate, the most common rate that is tracked is the Bank of England Base Rate.
A capped mortgage is the same as a variable rate mortgage; however the interest rate can never rise above a set “cap”. These mortgages can work well for people who can budget for different mortgage repayments each month but want the reassurance that their payments will never go above a certain amount.
Offset mortgages are linked to a savings account as well as your current account. Your savings will be 'offset' against the value of your mortgage, and you'll only pay interest on your mortgage balance minus your savings balance. These types of mortgages work well for higher earners or people who have a good amount in savings that they want to use towards paying their mortgage.