Company Director Mortgages

David Sharpstone talks all about the mortgage process for Company Directors. 

Can I get a mortgage if I’m a Company Director?

Absolutely, if you’re a Company Director you’re still able to get a mortgage from many sub contractor friendly Mortgage Lenders. If a Limited Company has an arrangement with a construction firm where they’re receiving CIS pay, even as a director of that limited company, they can use that CIS income to get a mortgage based on their day rate. The rules on that are very simple, you have to run 100% of the company and you can’t employ anybody else. It’s just got to be work for one person, which is you, as a Company Director.

In terms of getting a mortgage for a Company Director in any other circumstances, then, of course, you can get a mortgage as a Company Director. There are lots of interesting ways to structure the income in order to meet the criteria of different lenders. There are plenty of opportunities.

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

When it comes to being a Company Director and trying to get a mortgage, there are two different ways that Mortgage Lenders may consider income.

The vast majority of lenders, especially on the high street, will assess income based on personal earnings for the fiscal year from April to April. They’ll tend to look at any salary that you’ve drawn out, plus any dividends as your income for that specific year and look at an average of the last two years’ salary plus dividends. If two years haven’t been completed as a Company Director, there are certain lenders that can actually accept one year.

There are also Mortgage Lenders who work out affordability for a Company Director based on the profitability of the company after all the tax has been paid, then adding on to that the salary instead of dividends. If your company is doing particularly well, but you’re trying to be quite tax efficient, what you don’t want to do is draw out more income from the company than you really need to to live on. Some banks will recognise that and it doesn’t have to be a sole Company Director, it could be a partner with a percentage share.

What if I have fluctuating income?

The income and dividends fluctuate during the year, because dividends are a share of the profits, and the profits are going to be different from one month to the next. Mortgage lenders will take the trend over the full year, so it doesn’t matter if there’s fluctuations within the twelve months.

If there are fluctuations from one year to the next and there is a downward trend, then a Mortgage Lender is likely to use the most recent year rather than an average. One or two Mortgage Lenders might consider using the most recent year, it’s higher than the previous year, but generally speaking they take the average or the lower, if the latest year is a lower figure.

What about pay as you earn (PAYE) income?

As a Company Director, if you’re earning a salary, the lender is basing their calculations on the personal self-assessed year. What you can’t do is increase your salary to try and achieve the mortgage you need if you’re a PAYE salaried director rather than Self-Employed. That’s considered mortgage fraud and Mortgage Lenders will consider any Company Director to be Self-Employed for mortgage purposes. It doesn’t matter what’s on the pay slip, what’s on the tax return at the end of the year is what will be used.

How much can I borrow and what sort of deposit will I need as a Company Director?

The amount you can borrow is going to be based on whichever lender has been found for you by your Mortgage Broker. Each has their own affordability model, but generally speaking, lenders tend to allow Self-Employed people to borrow around about four and a half times their income.

That figure would go down if you’ve got expensive financial responsibilities and ten children, or other dependent relatives living with you. A few Mortgage Lenders might offer five times, or even a little more, times the income for particular professions or high income earners.

One of the common issues with this type of application is that when the mortgage application is submitted, the Mortgage Lender is unable to accept it because the accountant doesn’t have the right qualification to provide a reference or their letter or their signed off accounts. Always check before submitting an application that your accountant matches the lender’s professional qualification criteria. If you’re not sure, give us a call and we’ll work that out for you.

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