Mortgages for company directors

In many cases, you’ll need to own a stake in a company worth 20% or more to be considered a director. If you own less than this, it’s likely that mortgage lenders would calculate your income as if you were an employee.

For those defined as directors, there are two main ways that lenders may choose to calculate your income.

• Salary drawn + dividends. Most lenders will calculate your income this way.
• Share of your company’s net profit. A few specialist lenders will calculate your income this way instead.

Most lenders will consider the mean annual income over all the years of accounts you show them. Some will place extra weight on the income you earned in recent years. Nevertheless, if you can demonstrate consistent income over several years, this will always aid your mortgage application.

But here’s where it gets controversial.

In reality, directors (with help from their accountants) typically keep their incomes as low as possible, while expensing as much as possible. This means paying less income and/or dividend tax. BUT, when it comes to getting a mortgage approved, the amount they can borrow will depend on (amongst other things) their income. It’s a bit of an injustice, especially given that employed applicants tend to simply be asked for their gross income including any benefits like commission or bonuses.

So directors that are thinking of applying for a mortgage in the next few years may need to balance keeping their tax bills as low as possible with presenting a healthy, consistent income.

In order to find lenders that calculate your income in the most favourable way for your circumstances, it’s often with consulting a professional mortgage adviser. These individuals have a specialist knowledge of how lenders assess self-employed applicants, and will be able to point you towards the deal you’re most likely to be approved for. It’s generally a free service too, since they’ll get paid through referral commission.

There are various documents that mortgage providers will accept as proof of identity and proof of address. Lenders will also ask for recent bank statements in order to compare your income to your regular outgoings.

They’ll also require proof of your annual income as a contractor. Most will want at least three years worth of your accounts. The easiest way to prove this is via your SA302 forms, which are issued by HMRC after you submit a paper tax return.

Other accounts certified by a professional accountant.

There are some specialist lenders who will consider your application if you’ve been a company director for less than three years. However, if you’ve been trading for less than 12 months, your options will be extremely limited.

Many directors choose to apply through their limited company, rather than as an individual, because it helps them save money on tax.