Limited Company Director Mortgage
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Limited Company Director Mortgage
We’re talking all about mortgages for limited company directors, with Kirsty and Lewie from JXP.
Are there mortgages tailored to limited company directors?
Not specifically. All lenders will offer a mortgage to a limited company director, but certain lenders look at directors a bit differently from sole traders.
Most lenders will look at the salary and dividends on people’s annual tax returns. But there are other lenders who feel it’s more beneficial to look at the salary and net profits on the company accounts.
In that sense, certain lenders do tailor mortgages to the needs of limited company directors.
How do I prove my income and document my trading history as a limited company director?
It’s similar to any self-employed person. We would look at your tax calculation and tax year overview – they’re the standard documents. The tax calculations used to be called SA302s.
We would also look at full business accounts – and some lenders will also look at accountant certificates. We assess income quite early on with tax calculations and accounts. It doesn’t matter if you have an accountant or if you do self-assessment personally – as long as we can see the submitted copies that are sent to HMRC.
We’re always happy to liaise with the accountant to obtain copies of any paperwork – we’re here to help.
Do dividends count as income for a mortgage?
The dividend income will be detailed on your tax and accounting documents. We would need details for the last two to three years, depending on how many years the lender wants to go back. So yes, they certainly do count toward affordability.
What if I have a fluctuating income?
Different lenders will view that differently. It varies quite considerably, especially since Covid. If, for example, your latest year’s income was lower than the previous year, a lot of lenders will use just the latest year. But if your most recent year is higher, lenders tend to take an average of the last two years.
Some lenders will only look at the latest year’s income – so there are different ways we can approach this depending on your specific situation.
What about pay as you earn (PAYE) income?
A director will typically pay themselves a salary and receive monthly payslips. But in all cases the lenders will still ask for tax calculations, because those show the breakdown of PAYE income against dividend income.
What about retained profits?
This is an interesting one. It’s something that not many lenders review, but it can be really useful. Lenders will always look at salary and dividend income. But a handful of mortgage providers will look at retained profit instead – they’ll take salary and retained profit as your income.
In some instances that can work really well – and not so much in others. It depends how you manage your limited company. You could be any size, and you might not need to draw all your profit as dividends. We can use those retained profit as your income together with your salary. If your retained profit is higher than the dividends you’ve drawn, it might allow you to achieve a higher loan amount.
How much can I borrow and what deposit will I need for a limited company director mortgage?
Typically you can borrow four and a half times your income as a self-employed applicant, but it really varies from lender to lender. As we mentioned, a handful of lenders will look at salary and retained profits which can boost your borrowing capability. It’s our job to determine how to maximise affordability.
In terms of deposit, lenders are still happy to entertain as little as 5% or 10% depending on whether you’re a first time buyer or a house mover with some equity in the home.
How can a mortgage broker like JXP help?
It’s all about making the most of us as advisers. A lot of people think that because they are self-employed they need three years’ accounts. But the majority of the high street lenders only require two years.
There are also opportunities with lenders where if, for example, you’ve gone from a sole trader to a limited company, or from employment to being a limited company director with a shareholding of 25% or more, lenders will consider just one year’s accounts.
Speak to us as early as possible so we can help you plan ahead. We’ll look at when your accounts are due – and in some instances you might not even need to have those accounts finalised. Just seek advice as early as possible.
We’re always happy to liaise with accountants for certificates and information and give you the most suitable advice as early as possible.
Your home may be repossessed if you do not keep up with your mortgage repayments.