Mortgages for company directors

When company directors apply for mortgages, they have to do a bit more to prove they can afford the repayments.

Company directors are able to access the same mortgage products as everyone else. The application process is similar to employed applicants, although they’ll have to provide more detailed evidence of their income.

This is because a director’s income is regarded as less stable than an employee’s income.

If you’re a director, lenders will typically want to see at least one year’s worth of accounts to consider your application. However, if you can provide three or more years’ worth of accounts, this will improve your chances of being approved for a mortgage.

Essentially, it’s up to you to disprove a lender’s presumptions that your income is highly unstable.

How do lenders calculate a director’s income?

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.

What documents are required?

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.

What if I’ve been trading for less than three years?

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.

Can I get a buy-to-let mortgage if I’m a company director?

Yes, although the same hurdles will apply as when you’re applying for a residential mortgage.

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

How to improve your chances of being approved for a mortgage

  • Borrow as little as possible. The more you apply to borrow, the higher your monthly mortgage repayments will be. This makes it more difficult to pass a lender’s affordability checks. Consider applying to borrow less money, either by raising a larger deposit or applying to live in a cheaper house. Also, investigate government schemes, such as Help to Buy or Shared Ownership, which allow you to borrow less.
  • Reduce your outgoings. Lenders compare your income to your outgoings as part of their affordability assessments. Reducing your outgoings now will improve your chances of being approved for a mortgage in the future. A great start is to haggle over the cost of your utility bills and work towards clearing your existing debts.
  • Improve your credit score. Your credit score will play a huge role in your perceived eligibility for a mortgage, so it’s well worth taking steps to improve it. Make timely repayments on your debts and bills. Ensure you don’t go overdrawn on any financial accounts. Consider opening a credit-builder credit card and making timely repayments on this too. You can check your current credit score here.
  • Consider a CIS mortgage.If you work in the construction industry, you could be eligible for a CIS mortgage. These tend to offer more favourable terms than traditional mortgages and are easier to be approved for.
  • Work with a professional mortgage adviser to find lenders that are serious about lending to directors. The way lenders calculate a mortgage applicant’s eligibility is particularly complicated for company directors. That’s why it makes sense to have a mortgage adviser recommend the best product for your circumstances. Rejected mortgage applications waste your time and ruin your credit score, making it more difficult to be approved in the future, so it’s well worth using these professionals to ensure you get approved the first time.

Finder survey: Would you sell your property cheaply, or give it, to family members when you retire or die?

Not sure7.61%9.49%
I already retired7.61%3.61%
I don't have children/family members7.61%6.02%
Source: Finder survey by Censuswide of 1032 Brits, December 2023
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
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