Running your own company offers so much freedom and independence. Sadly, it can also complicate some traditional procedures like getting a mortgage. 

To manage the tricky process, it’s important to know what you are doing so that you have an organised and smooth application process. So, we are here to tell you all the essentials of getting mortgages for limited company directors.

Why Are Mortgages Different for Limited Company Directors?

Traditional employees receive a consistent salary whereas company directors get a combination of salary and dividends, which results in a non-standard income structure. Non-standard income can be unpredictable. Since lenders prefer steady, predictable earnings, they might want to steer clear of limited company directors.

While assessing, lenders may look at the affordability differently for mortgages for company directors. In a usual case, personal income is examined but if you are a company director, the company’s overall performance is scrutinized to understand if your business is thriving. 

Challenges in Getting a Mortgage as a Limited Company Director

Proving Income

A traditional employee will easily have documentation of their salary. So you, too, have to demonstrate a reliable income to lenders. Most lenders will look at your salary and dividends but some specialists may consider your share of the company’s net profits, giving you more borrowing power. 

Limited Trading History

Two to three years’ worth of account is generally required to understand your business’s financial stability. If you are applying when your business is still new, things will be more challenging than usual. You should at least wait 1 year before you apply and even then, you should have some future income contracts like investments to prove that you are in this for the long run. 

Deposit Requirements

A high deposit can tip the scales your way if you are perceived as a higher-risk borrower. There isn’t much need to offer a high deposit if you are able to prove a steady good income and your business is thriving. However, if your application raises red flags due to any lackings, consider offering a high deposit to make up for it. 

Lender Criteria

The application process can be more subjective than we think as each lender looks at your application with a different set of eyes. Some lenders may care only about your personal income, while others will be impressed about your company’s profit and growth. This makes the process feel a lot like a lottery. 

Credit History

Credit history is always given a lot of priority in a typical mortgage situation, and it’s not different for a company director except it may be scrutinized even more. Your company may be profitable but if your personal credit is poor, lenders may only accept your application with higher interest rates and stricter terms. If your credit history is less than perfect, you must start to take steps to improve it. 

Role of Retained Profits

Remember that not all lenders include retained profits when assessing your affordability. If your company is thriving and generating a significant profit, finding a lender who considers profit can significantly boost your borrowing profit, especially if you are reinvesting earnings back into the company. 

Tips to Improve Your Chances

Prepare Comprehensive Financial Documents
Take the help of a qualified accountant to prepare company accounts, preferably for 2-3 years. If your company has made a significant profit, a broker can help you find lenders who consider them. 

Demonstrate a Stable Income
If you are able to draw a consistent salary and dividends over a good period of time, it makes your financial profile appealing and you an attractive borrower to lenders for getting a mortgage as a limited company director​.

Improve Your Credit Score
Before you apply for a company director mortgage​, you should do whatever you can to boost your credit score. This includes paying off any debts, avoiding missed payments, and limiting new credit applications. 

Consider Specialist Lenders/Broker
Some lenders and brokers specialise in mortgages for company directors and are more familiar with non-standard income structures. They are more understanding of your situation and therefore, will offer you leniency accordingly. 

Tax Implications for Limited Company Directors

One of the pros of being a company director is that you can optimize your income for tax efficiency. However, this can backfire when it comes to the company director mortgage​. Drawing a low salary so that your personal tax liability is low, looks pretty bad to lenders when they assess affordability. 

You can choose to adjust your drawings to align with mortgage application requirements but before you take any major steps, discuss with a financial advisor and get expert guidance. 

Common Myths About Mortgages for Limited Company Directors

Yes, there are challenges to securing a mortgage but don’t let misinformation and misconceptions sway you away from pursuing a ltd company director mortgage​. Let’s debunk some of them: 

‘You Need a Huge Deposit’

Lenders often require a high deposit when they perceive you to be a high-risk borrower. While that’s likely for limited company directors, it’s not always true. Many lenders are willing to offer competitive deals with 10-15% deposit if your financial profile is healthy. You just need the help of a broker to identify these options so that you don’t get tied up in a bad deal. 

‘Your Income Is Too Complex to Qualify’

Lenders, especially specialist lenders, take the utmost time to go through your application. Complex income doesn’t scare them, and it doesn’t have to disqualify you. Many flexible lenders cater specifically to company directors and are open to considering retained profits, loans, and even projected income. 

‘Rejection from One Lender Means You Won’t Qualify Elsewhere’

It’s important to remember that different lenders want different things. A rejection from one doesn’t mean every other lender will reject you. Some are more flexible than others. You just need the perfect match who is likely to approve your application based on your unique circumstances. Don’t let one rejection stop you from chasing your dreams.

Benefits of a Specialist Broker

Surviving the mortgage market requires strategy and can feel daunting. Working with a specialist helps you through the process of getting a mortgage as a limited company director​. These professionals have access to lenders who look beyond the traditional income metrics of salary and dividends. They can connect you with providers who consider a combination of income. 

A specialist broker understands which lenders are flexible about trading history, company structures, and income documentation. They can also guide you in the preparation as well. 

Lastly, an experienced broker will present your case in the best possible light. So even if your income is structured in a non-traditional way, they understand how to package your application to meet lender requirements for the ltd company director mortgage​. What you are likely to get in return are competitive rates and favourable terms. 

Conclusion

Securing a mortgage for a limited company director requires some effort from your side. Therefore, prepare thoroughly by arranging necessary paperwork well, and seeking advice. Being a limited company director is a matter of pride and doesn’t have to be a hurdle in your property goals. 

Our team at UK Mortgage Finder has helped many company directors secure a mortgage. Contact us today so we can connect you with a fully qualified mortgage expert. We are here to make the process stress-free.