While being a company director may add complexity to securing a mortgage, it’s important to remember that it’s not an impossible challenge. High street lenders may need consistent criteria, leading to varying interest rates or rejections; however, getting a mortgage as a company director is possible with the right lender.
Why Lenders See Company Directors as Risky
Lenders typically view company directors as higher-risk applicants compared to salaried employees. This perception stems from the fluctuating income that often characterizes running a business. As a director, you aren’t just showing your income; you’re also proving your company’s financial health and stability.
Whereas an employee can present a straightforward salary, a director must demonstrate that their business can reliably generate sufficient income to cover mortgage payments over the long term. This requires not only showcasing their personal financial situation but also providing evidence that their company is stable and profitable enough to sustain their salary. Therefore, meticulous preparation and comprehensive documentation become critical in presenting a strong mortgage application.
Proving Your Financial Stability
Securing a mortgage may require just six months of payslips if you’re a salaried employee. For company directors, however, the process is more complex. Lenders typically require at least one year of trading history, though many prefer to see three years of accounts to assess income consistency and business viability. This means you’ll need to provide detailed financial records, including your business accounts, SA302 year-end tax calculations, and recent bank statements, to demonstrate your financial stability and the viability of your business.
When applying for a mortgage as a company director, you’ll need to provide several key documents, including:
- 1-3 years of business accounts: A qualified accountant should ideally prepare and certify these.
- SA302 year-end tax calculations: This document summarizes your earnings for the year as declared to HMRC.
- Recent business and personal bank statements: Lenders use these to assess your financial habits and overall financial health.
- A breakdown of salary, dividends, and your share of net profits: This gives lenders a clearer picture of your actual take-home income.
These documents help paint a comprehensive picture of your personal and business finances, which is crucial for lenders to assess the risk involved in lending to you.
Finding the Right Lender
One of the company directors’ most significant challenges is finding a lender willing to accommodate their unique financial situation. However, not all lenders are the same. Some lenders may base their assessment on your most recent tax year, which can be particularly advantageous if your business has experienced growth. This approach can prevent the less profitable years from dragging down your borrowing capacity, allowing for a larger loan or more favourable interest rates.
Some lenders also consider your share of the company’s net profit rather than your salary. This can be particularly beneficial if your business is performing well, as it opens up the possibility of securing better mortgage terms.
The Role of Mortgage Brokers
Working with a mortgage broker can be incredibly beneficial, given the complexities involved. Brokers like The Mortgage Blog specialize in helping clients navigate the intricate mortgage market, especially those with non-traditional income streams like company directors. A broker can sift through thousands of deals across numerous lenders to find the one that best fits your situation. This not only saves you time but also provides peace of mind, knowing that you’re making informed decisions and getting the best possible deal.
How Much Can You Borrow?
The amount you can borrow as a company director will vary based on several factors, including your income, the financial health of your business, and the lender’s specific criteria. Generally, you can access mortgages with a loan-to-value (LTV) ratio of up to 95% (requiring a 5% deposit), though 90% or 85% LTV mortgages are more common.
Larger loans usually require higher deposits, which is a safety net for lenders. The higher the deposit, the lower the perceived risk, sometimes translating into more favourable interest rates.
Mortgages with a Poor Credit History
Securing a mortgage with a poor credit history is challenging but possible. Minor issues like a missed phone bill payment might have a minor impact on your application. However, more severe credit issues, such as a County Court Judgment (CCJ), can severely limit your options. Additionally, if your company has declared losses in recent years, this could raise red flags for lenders, leading to higher deposit requirements or less favourable interest rates.
Buy-to-let mortgages Through a Limited Company
For some company directors, especially those in property investment, getting a buy-to-let mortgage through their limited company may be a viable option. This route is typically reserved for special purpose vehicles (SPVs) set up expressly for property transactions. It’s important to note that this approach involves additional costs, such as corporation tax and stamp duty, and generally requires a larger deposit, often around 25%. However, it can also offer tax advantages and liability protection, making it an attractive option for some directors.
Final Thoughts
Applying for a mortgage as a company director involves more scrutiny and complexity than a typical salaried employee. However, with thorough preparation and the right professional support, securing a favourable mortgage deal is not only achievable but also a secure and confident process. Working with an experienced mortgage broker can make a significant difference, helping you navigate the intricacies of the mortgage market and find a lender who understands your unique financial situation.
If you’re ready to explore your options, our experienced advisors are here to help. We’ll provide an overview of the available options and guide you toward the best-suited solution for your needs. Call us on 0333 335 6595 or message us to get started!
