Company directors, due to the nature of their income, often encounter unique challenges when seeking a mortgage. The structure of their income, typically consisting of a base salary, dividends, and possibly retained profits in the company, can make the process of obtaining a mortgage somewhat complex. In this article, we’ll explore the landscape of mortgages for company directors, providing insights into the considerations and best practices in this journey.
What is a director’s mortgage?
A mortgage for a company director is essentially a home loan designed for those who hold a significant interest in a limited company. This includes directors who receive both a regular salary and those whose primary income comes in the form of dividends. The critical factors taken into account when assessing eligibility for a director’s mortgage typically include the director’s salary, personal income from dividends, and the financial health of the company.
The unique challenges for company directors
Despite their often-stable financial position and potentially higher income levels, company directors may face specific challenges when applying for a mortgage. Traditional lenders sometimes find it challenging to determine the director’s actual earnings due to the mixed nature of their income, i.e., the base salary plus dividends.
Moreover, many company directors opt to retain profits within the company to facilitate growth and further investment. While this is a sensible business strategy, it can complicate the mortgage application process, as traditional lenders may not account for these retained profits when determining the director’s personal income, potentially limiting their borrowing capacity.
How do mortgages for company directors work?
Mortgages for company directors work slightly differently than traditional employee mortgages due to the unique nature of a director’s income. This income typically includes a combination of salary, dividends, and potentially retained profits in the company.
Here’s a step-by-step breakdown of how mortgages for company directors work:
Income assessment: The first thing a lender will look at is your income. Unlike a traditional employee, where lenders simply look at the salary, the income of a company director can be more complex. Lenders will consider both your salary and dividend payments as your personal income.
Retained profits: This is an area where company directors often face challenges. Many directors leave money in their company to facilitate future growth. While these retained profits technically belong to the director, not all lenders will consider them as part of your personal income when calculating your affordability. However, there are specialist lenders who will consider retained profits, increasing your borrowing power.
Proof of income: You will need to provide proof of your income. This typically involves sharing company accounts and SA302 forms or tax year overviews for the last two or three years. Having these documents prepared by a reputable accountant can help, as they can ensure that your income is represented in a way that’s acceptable to lenders.
Affordability: Once your income is assessed, the lender will calculate how much you can afford to borrow. This is typically done by multiplying your income by a certain amount, usually up to 4.5 times, although some lenders may go higher. The exact amount will depend on your circumstances and the lender’s criteria.
Credit score: Like any mortgage, a good credit score is critical. Lenders will assess your credit history to ensure that you are a reliable borrower.
Mortgage offer: Once the lender is satisfied with your income, affordability, and credit score, they will offer you a mortgage. This will detail how much you can borrow, the interest rate, and the terms of the mortgage.
While this process can seem more complex for company directors, with a clear understanding of your own financial situation and potentially seeking advice from a mortgage broker, securing a mortgage can be a straightforward process. Remember, each lender has different criteria, so it may be worth speaking to several to find the best deal for your circumstances.
What’s the eligibility criteria?
The eligibility criteria for company directors seeking a mortgage can vary among different lenders, but generally include the following:
Director status: You should hold a significant position or stake in a limited company, usually a minimum of 20–25%.
Income verification: Lenders will require proof of your income, which can include your salary and dividends. This is typically verified through your company’s certified accounts or SA302 forms from HM Revenue & Customs, which confirms your income for the past 2-3 years.
Retained profits: If a significant portion of your income is retained within the company, you should look for a lender that takes this into account. Not all lenders consider retained profits as part of the director’s personal income, but some specialist lenders do.
Credit history: As with any mortgage application, a good credit history is essential. Lenders will look at your credit score and your credit history, including any late payments, defaults, or CCJs.
Affordability: Lenders will assess your overall financial situation to ensure you can afford the mortgage repayments. This includes considering any outstanding loans, credit card debts, and other financial commitments.
Deposit: Generally, you’ll need to have a deposit of at least 5–10% of the property’s value, although a higher deposit may enable you to access better mortgage deals.
Age: Most lenders have upper age limits at the end of the mortgage term, typically between 70 to 85 years.
How much do I need for a deposit?
The deposit amount required for a mortgage, including those for company directors, will vary based on several factors, including the lender’s policies, the cost of the property you’re buying, and the type of mortgage product.
Generally, in the UK, you’ll need a minimum deposit of 5–10% of the property’s value. That means, if you’re buying a property worth £300,000, you would need to save at least £15,000 to £30,000 for the deposit.
However, it’s important to note that the more you can put down as a deposit, the lower your loan-to-value (LTV) ratio will be. This is the proportion of the property’s value that you’re borrowing, with the rest covered by your deposit. A lower LTV often gives you access to more competitive interest rates because the lender is taking on less risk.
Therefore, while the minimum deposit may be 5–10%, aspiring homeowners often aim for a 20% deposit or more to secure better mortgage terms. Always consult with a financial advisor or mortgage broker to understand what the best approach would be based on your financial situation and property goals.
How much can company directors borrow?
The amount company directors can borrow for a mortgage largely depends on the lender’s assessment of their income and overall financial situation. Traditionally, mortgage providers will lend up to 4–4.5 times your annual income, but this can vary.
For company directors, the calculation of ‘annual income’ can include not just a base salary, but also dividends and potentially retained profits in the company. However, not all lenders will consider retained profits as part of your personal income, which can impact the overall amount you’re able to borrow.
For example, if a company director has an annual income of £100,000 (combining salary and dividends), they might expect to borrow between £400,000 and £450,000.
There are, however, some lenders who may lend up to 5 or even 6 times the annual income, particularly if you have a high income and a strong financial profile.
Bear in mind that lenders will also consider your outgoings and other financial commitments to ensure that you can afford the mortgage repayments. This includes any existing debts, necessary expenditures, and lifestyle costs.
How does a lender assess my income?
When you apply for a mortgage as a company director, a lender will assess your income to determine how much you can borrow. Here’s how they typically evaluate your income:
Salary: The lender will consider the salary you draw from your company as a director. This is a stable form of income, similar to what an employed person would receive.
Dividends: In addition to your salary, if you receive dividends from your company’s profits, these can also be included in your total assessable income. You’ll need to provide evidence of dividend income, usually via your personal tax documents (like your SA302 form from HM Revenue & Customs in the UK) or company accounts.
Retained profits: This is where it can get a bit tricky. If your company retains profits (i.e., money that the company has made but has not paid out in dividends), some lenders may consider these when assessing your income. However, this isn’t universally the case, as the money is technically still within the company and not in your personal possession. Policies vary widely, and some lenders may consider a percentage of retained profits, while others might not include them at all.
Other income: If you have other forms of income, such as rental income from investment properties or earnings from other investments, these can be included in the lender’s assessment.
When you’re providing evidence of your income, lenders usually want to see consistency and stability. They typically ask for proof of earnings for the past two to three years, but requirements can vary between lenders.
In summary, lenders want to be sure that you have sufficient, regular income to meet your mortgage repayments. Therefore, they consider all forms of reliable income in their assessment. If you’re a company director with a significant amount of retained profits or a complex income structure, it might be beneficial to work with a mortgage broker. They can help you find lenders who are familiar with these situations and guide you through the application process.
How do I prove my income?
Proving your income as a company director for a mortgage application typically involves the following steps:
Company accounts: You’ll need to provide the lender with your company’s certified accounts, usually for the past two to three years. A certified or chartered accountant should be the one to prepare these. They provide a detailed breakdown of your company’s performance and profits, as well as your salary as a director.
SA302 forms: The SA302 form is a response from HM Revenue & Customs (HMRC) that provides evidence of the income you have received and declared for tax purposes. This can serve as proof of your personal income (both salary and dividends). If you submit your tax return online, you can print your SA302 form directly from HMRC’s website.
Tax year overview: This is a document that you can print from your HMRC online account. It provides a summary of the total tax due and paid for a specific tax year. This document is usually requested alongside the SA302 form to confirm the total income declared and the tax paid.
Bank statements: Some lenders may also request your personal and/or business bank statements. These can serve as further evidence of your income, especially where dividends are concerned.
How does trading history affect mortgage availability?
Trading history can have a significant impact on mortgage availability, particularly for company directors and self-employed individuals. Here’s why:
Demonstrates financial stability: A consistent trading history can demonstrate financial stability and profitability, which is a critical consideration for lenders. Mortgage lenders want to see that your company has been consistently profitable, which suggests you’ll be able to sustain your income and, consequently, your mortgage repayments in the future.
Length of trading history: Most lenders prefer to see at least two to three years of trading history when assessing your mortgage application. This history provides them with a more reliable view of your average income. If you’ve only been trading for a short time (usually less than a year), you might find your mortgage options more limited.
Fluctuations in income: If your trading history shows significant fluctuations in income, this could impact your mortgage availability. If your income varies significantly from year to year, lenders might only consider the average income over the past two to three years, or they may base their calculations on your lowest recent annual income.
Industry factors: Some lenders may also consider the health and stability of the industry in which you’re trading. If your sector is facing difficulties or is particularly volatile, this could potentially affect your mortgage eligibility.
Profit retention: For company directors, lenders will look at whether profits are being retained within the business or paid out as dividends. If you typically retain a significant amount of profit in the business, some lenders may consider this when calculating your income.
Can a limited company director use a remortgage to raise capital for their business?
Yes, a limited company director can potentially use a remortgage to raise capital for their business. This process is sometimes referred to as “equity release” or “capital raising”. It involves remortgaging your property, often your personal home, to release some of the equity that you’ve built up over the years.
Equity is the difference between the market value of your property and the outstanding mortgage balance. By remortgaging, you can borrow against this equity and get a lump sum that you can then invest in your business.
However, there are a few important points to consider:
Affordability: The increased mortgage payments must be affordable. The lender will assess your income (including salary, dividends, and possibly retained profits) to ensure that you can afford the higher repayments.
Purpose of funds: Most lenders will want to know what the funds will be used for. While some are comfortable with the funds being used for business purposes, others may not be. It’s crucial to discuss this with the lender or a mortgage broker before proceeding.
Risk: Remember that by increasing your mortgage, you are effectively reducing the equity in your home. If property prices fall or if you struggle to meet the repayments, there’s a risk you could end up in negative equity or even face repossession.
Tax implications: There may be tax implications associated with raising capital for your business through a remortgage, so it’s worth discussing this with your accountant or a financial advisor.
Overall, while it is possible for a limited company director to raise capital for their business through a remortgage, it’s important to fully understand the implications and consider all the options. Speaking with a mortgage broker and a financial advisor can provide valuable guidance.
Can I get a mortgage with less than a year’s trading history?
Obtaining a mortgage with less than a year’s trading history can be challenging, but it’s not impossible. The primary challenge is that many lenders require at least two to three years of trading history to assess the stability and sustainability of your income.
Traditional high-street lenders tend to be more rigid with their lending criteria. However, there are specialist lenders and certain mortgage products in the market that may consider applicants with less than a year’s trading history. Here are a few key factors to note:
Proof of income: You will still need to demonstrate a reliable income, even with less than a year’s trading history. This might involve showing contracts for future work, invoices, or a record of consistent payments into your business account.
Professional experience: If you can demonstrate a successful history in the same line of work prior to becoming a company director, some lenders may be more willing to consider your application.
Financial forecasts: In the absence of a substantial trading history, lenders might also consider business financial forecasts. A qualified accountant who can attest to the viability and growth potential of your business should ideally prepare these forecasts.
Deposit size: Having a larger deposit could potentially make you a more attractive proposition to a lender, as it reduces their risk.
Credit history: A strong personal credit history is always beneficial when applying for a mortgage, and even more so when your trading history is limited.
It’s essential to approach this with the understanding that not all lenders will be willing to provide a mortgage in these circumstances, and those that do may charge higher interest rates due to the perceived risk.
Using the services of a mortgage broker with experience in self-employed and company director mortgages can be invaluable in these situations. They can help you identify suitable lenders and guide you through the application process. They’re also often able to negotiate terms and navigate the complexity on your behalf, giving you the best possible chance of success.
Do I require a chartered accountant to sign off on my accounts?
For a mortgage application, many lenders in the UK will prefer that your accounts be prepared and signed off by a certified or chartered accountant. This is to ensure that your financial information is accurate and in accordance with accounting standards. Lenders rely on this information to assess your income and determine your eligibility for a mortgage.
Having your accounts signed off by a chartered or certified accountant can help provide a greater level of confidence in the reliability of your financial information, and therefore, could potentially improve your chances of mortgage approval.
However, requirements can vary between lenders. While some people might insist on having their accounts prepared by a certified or chartered accountant, others might be more accommodating and accept accounts prepared by a qualified bookkeeper or tax advisor.
In cases of doubt, it’s advisable to check directly with the lender or engage the services of a mortgage broker who is familiar with different lenders’ criteria. It’s also worth noting that using a qualified accountant to prepare your accounts could be beneficial for other reasons too, such as ensuring tax efficiency and financial compliance for your business.
I’m a company director with bad credit. Can I still get a mortgage?
Yes, it is still possible for a company director to get a mortgage with bad credit, although it may be more challenging. Your options may be more limited, and you may face higher interest rates, but there are lenders who specialise in providing mortgages for those with adverse credit histories.
Here are a few factors to consider:
Nature of credit issues: The nature of the credit issues will influence your mortgage options. Lenders are likely to view some issues more seriously than others. For instance, a bankruptcy or a County Court Judgment (CCJ) for a substantial amount may be viewed more negatively than missed payments on a utility bill.
Recency and frequency: The recency and frequency of credit issues also matter. If you’ve had multiple credit issues recently, this could limit your options more than if you had a single issue a few years ago.
Repaired credit: If you’ve taken steps to repair your credit and can demonstrate financial responsibility since the credit issue occurred, this could increase your chances of approval.
Deposit: A larger deposit can often improve your chances of getting approved for a mortgage, as it reduces the lender’s risk.
Affordability: Like any other mortgage applicant, you’ll still need to demonstrate that you can afford the mortgage repayments. As a company director, this could involve providing proof of your salary, dividends, and possibly retained profits from your business.
Can I get a mortgage if my company has made a loss?
Getting a mortgage when your company has made a loss can be more challenging, but it’s not impossible. The primary concern for lenders is your ability to afford and sustain the mortgage repayments.
Here’s what you should consider:
Personal income: Even if your company has made a loss, if you’ve still drawn a regular salary and dividends, this could be considered by the lender. Lenders will look at your personal income rather than the net profit of your company. If your personal income has been consistent and sufficient, you might still be able to secure a mortgage.
Recent trading history: The timing of the loss can also be a factor. If your company has made a loss in the most recent trading year, but has a history of profitability in the years before that, some lenders may still consider your application. They might average out your income over the past few years or take into account the higher-income years.
Nature of the loss: The reasons behind the loss can also matter. For instance, if the loss was due to a one-off investment that’s expected to increase future profitability, this might be viewed differently than a loss resulting from a downturn in business.
Deposit Size: A larger deposit can often improve your chances of getting a mortgage approval, as it reduces the lender’s risk.
However, each lender will have their own criteria and approach to risk, so it’s worth seeking advice from a mortgage broker who can guide you to the most suitable lenders. Specialist brokers can assist with applications for company directors and those with complex income structures. They can help you understand your options, navigate the application process, and potentially negotiate more favourable terms on your behalf.
It’s important to note that making a loss may also impact your credit rating and future business prospects, so it’s advisable to seek professional advice from a financial advisor or accountant to ensure the long-term viability and financial health of your company.
Can I get a mortgage if I have changed my company type?
Yes, you can still get a mortgage if you’ve changed your company type. However, the impact of the change on your mortgage application will depend on several factors, including the nature of the change, your trading history before and after the change, and your income stability.
Here are some situations you might encounter:
From Sole Trader to Limited Company: If you’ve transitioned from being a sole trader to a limited company, lenders may still consider your sole trader trading history when assessing your application. However, this will depend on whether the nature of your business has remained consistent and your income has remained stable or increased following the change.
From Partnership to Limited Company: Similar to the shift from sole trader to limited company, lenders will look at the consistency in the nature of the business and income. If the partnership was profit-sharing, they might want to know if the income split has changed in the new company structure.
Change in Business Activity: If the change in company type involved a significant change in your business’s nature or activities, it might be more challenging. Lenders prefer to see a stable trading history in a consistent line of work.
Income Stability: If your personal income (salary and dividends) has remained stable or increased after the change in company type, this could enhance your prospects of mortgage approval.
Keep in mind that every lender has their own criteria, so the way they consider company type changes may vary. Some lenders are more flexible and consider the total trading history, regardless of changes in the company structure.
How do I get a copy of my SA302?
If you’re a company director or self-employed in the UK, your SA302 is a summary of your income that has been reported to HMRC. It is often required by mortgage lenders as proof of your income.
Here’s how you can get a copy of your SA302:
You can get your SA302 from HM Revenue and Customs (HMRC) if you’ve:
Sent your self-assessment tax return online.
Registered for and activated the HMRC online service.
Follow these steps to print your SA302 from HMRC’s online service:
- Sign in to your online account on the HMRC website.
- Select ‘Self Assessment’ from your HMRC account homepage.
- Click on ‘More Self Assessment details’.
- Choose ‘Get your SA302 tax calculation’.
- Continue to your calculation.
From this point, you can either:
- Print your full calculation (this includes your SA302).
- Print your tax year overview. You’ll need this as well as your full calculation (SA302) if you’re applying for a mortgage.
Remember, you can only access your SA302 for the past 4 years. If you need a tax calculation for a year that isn’t listed as an option, you need to contact HMRC directly.
If you submitted your tax return through a commercial software package or a tax adviser, you may need to request the SA302 directly from HMRC or ask your adviser to do this on your behalf.
Always make sure to check with your mortgage lender or broker about the specific documents they need as evidence of income, as requirements may vary.
How do I get a copy of my tax overview?
In the UK, your Tax Year Overview is an official document provided by HM Revenue and Customs (HMRC) that shows the tax you’ve paid on your income for a specific tax year. This document is often requested by mortgage lenders as proof of income for self-employed individuals or company directors.
Here are the steps to get a copy of your Tax Year Overview:
- Sign in to your online account on the HMRC website.
- Select ‘Self Assessment’.
- You will find ‘Tax Return Options’. Select the tax year for the Tax Year Overview you require.
- Choose ‘View Returns’. Then click ‘Go to Your Return’.
- From there, select ‘View Your Tax Year Overview’ and print this document.
Remember, you need to have submitted your self-assessment tax return for the relevant year before you can download your tax year overview. This document is typically available to download 72 hours after you’ve submitted your return.
Your tax year overview will show:
- Your taxable income from all sources that you reported on your self-assessment tax return
- The total tax due and the amount you’ve already paid towards this
- Any unpaid tax for this year.
Mortgage lenders often require both the SA302 and the Tax Year Overview as evidence of your income if you’re self-employed or a company director. They will typically want to see these documents for the past two or three tax years. As always, it’s important to check with your mortgage lender or broker about their specific requirements.
Will I have to put down a bigger deposit as a company director?
As a company director, the amount of deposit you’ll need to put down for a mortgage isn’t necessarily larger by default. The specific mortgage product you’re interested in, the lender’s requirements, and your unique financial situation all play a role in determining the deposit size.
Most mortgage lenders in the UK usually require a deposit of at least 5–10% of the property’s value. However, for the best mortgage terms and interest rates, a deposit of 20–25% is often desirable. The general rule is: the larger the deposit, the lower the risk for the lender, which can result in more favourable mortgage terms for the borrower.
Here are a few scenarios where a larger deposit might be beneficial or required:
Irregular income: If your income is irregular or fluctuates significantly from year to year (a common issue for many company directors), a lender may view this as increased risk. A larger deposit could help to offset this risk.
Bad credit: If you have a bad credit history, lenders may require a larger deposit to compensate for the higher perceived risk.
Newly formed company: If your company is relatively new and lacks a long trading history, this might be seen as higher risk by lenders, potentially requiring a larger deposit.
Remember, each lender has different criteria, and what one lender may require, another may not. It’s advisable to seek advice from a mortgage broker who can help you understand your options and guide you to the most suitable lenders. They can also provide advice on how to improve your application and possibly negotiate more favourable terms on your behalf.
Can I borrow using my latest year’s accounts?
Yes, in many cases, lenders will consider your most recent year’s accounts when assessing your mortgage application. However, how they consider your income may depend on the specifics of the lender’s criteria and the stability of your income.
Traditionally, lenders asked for an average of your profits over the last two or three years. However, this approach can disadvantage company directors whose profits have increased in the most recent year. As a result, many lenders have adapted their criteria and may now consider the income from your latest year’s accounts, especially if your income has increased.
If your income has decreased in the most recent year, lenders may take an average of the last two or three years or consider the latest year, depending on which is lower.
Do note that each lender will have different criteria. Some may still insist on a two- or three-year average, while others might be more flexible. It’s also worth noting that lenders will generally want to see accounts that have been prepared by a certified or chartered accountant.
Can I borrow against retained profits?
As a company director, your retained profits, i.e., the profits left in the business after you’ve paid corporation tax, can indeed be considered by some lenders when calculating how much you can borrow for a mortgage. However, it’s important to understand that not all lenders will take retained profits into account.
Typically, lenders consider your personal income (salary and dividends) for mortgage affordability calculations. However, if you retain profits within the business (often for reinvestment), this can reduce your personal income and potentially limit your borrowing power.
Fortunately, some specialist lenders recognise this situation and are willing to consider retained profits in addition to your salary and dividends. They understand that company directors may limit their drawn income for various reasons, including tax efficiency, and are thus willing to base their lending decision on a broader view of your financial situation.
However, it’s crucial to note that every lender’s criteria are different. While some may accept retained profits as part of your income, others may not. Therefore, it’s advisable to work with a mortgage broker who is familiar with mortgages for company directors and can guide you to the most suitable lenders based on your specific circumstances.
How to get a mortgage as a company director
As a company director, getting a mortgage involves a similar process to other types of employment, but there are a few additional considerations due to the nature of your income.
Here are some steps to help you prepare:
Understand your Income: Lenders want to be assured that you can afford the mortgage repayments. If you’re a company director, your income might come from a combination of salary, dividends, and possibly retained profits in your company. Understand the structure of your income, as different lenders may assess your income differently.
Check your credit score: Your credit score plays a crucial role in your mortgage application. The better your credit score, the more likely you are to be accepted for a mortgage. If your credit score is low, you might want to spend some time improving it before applying.
Prepare your documents: Be ready with your documents. This will likely include:
- Proof of ID and address
- Your SA302s from HMRC, typically for the last two or three years
- Accounts signed off by a chartered or certified accountant
- Bank statements, often for the last three months
- Details of your business, including trading history and Companies House registration for limited companies.
Save for a deposit: The size of your deposit can impact your mortgage terms. Generally, a larger deposit can help you access better interest rates and can also offset some of the risks if your income fluctuates from year to year.
Talk to a mortgage broker: A mortgage broker with experience in self-employed and company director mortgages can be invaluable. They can guide you through the process, help you understand how lenders will view your application, and direct you to lenders most likely to accept your application.
Apply for a mortgage: Once everything is in place, you can apply for a mortgage. This can either be done directly with a lender or through a mortgage broker.
Who are the best lenders for business owners?
In the UK, there are numerous lenders who offer mortgage products suitable for business owners, including those who are company directors or self-employed. While I cannot specify the ‘best’ lenders because this would largely depend on your individual circumstances and needs, I can mention several lenders who are generally known for their favourable policies towards business owners.
Here are a few:
Halifax: Halifax has a reputation for being friendly towards the self-employed and company directors. They typically ask for a minimum of one year’s accounts, or SA302s, which can be beneficial if your business is relatively new.
Barclays: Barclays is another lender that has shown flexibility with self-employed borrowers. They generally look at the average income over the past two years but may consider only the latest year if your income has increased.
Santander: Santander can be a good choice for company directors who retain profits in their business, as they may consider retained profits in addition to your salary and dividends.
Clydesdale Bank: Clydesdale Bank may consider both your salary and dividends, as well as retained profits. They often require at least two years of accounts.
Virgin Money: Virgin Money generally uses the latest year’s figures and can consider a percentage of the net profit of the company in addition to salary and dividends for limited company directors.Metro Bank: Metro Bank may consider self-employed applicants with just one year’s accounts, making them a possible choice for newer businesses.
Coventry Building Society: They typically look for at least two years of trading history but can be flexible in terms of using the most recent year’s income or an average of the past two years.
Please note that this list isn’t exhaustive and does not guarantee approval with any of the mentioned lenders. Always do your research or consult with a professional to find the best lender for your specific circumstances.
Remortgaging as a business owner
Remortgaging as a business owner or company director is a common strategy to release equity from a property for various purposes, such as injecting cash into the business, consolidating debts, or even to get a better mortgage deal. The process is quite similar to getting an initial mortgage, but there are certain specific factors to consider:
Reasons for remortgaging: First, clarify your reasons for remortgaging. It could be for a better interest rate, to release equity for business investment, to consolidate debts, or to switch from an interest-only to a repayment mortgage. Your reasons will influence which type of remortgage product is most suitable for you.
Affordability: Lenders will assess your income in a similar way as they do for an initial mortgage. This typically involves looking at your income from the business (salary, dividends, possibly retained profits), and they may ask for your SA302 forms or accounts for the past 2-3 years.
Credit history: Your credit rating will influence the terms you can get. It’s always a good idea to check your credit report before applying and correct any errors you spot.
Equity: The amount of equity you have in your property will affect your loan-to-value (LTV) ratio, which is one of the factors lenders consider when determining the interest rates they can offer you.
Early repayment charges: If you are currently tied into a fixed, tracker, or discounted mortgage deal, you may need to pay an early repayment charge (ERC) to your existing lender if you remortgage before the deal ends.
Speak to a mortgage broker: Remortgaging can be complex, especially for business owners. A mortgage broker with experience in self-employed mortgages can guide you through the process and recommend the best lenders for your situation.
Application: Once everything is in place, you can apply for a remortgage. This may involve a valuation of your property and a thorough assessment of your financial situation.
Can a director of a liquidated company get a mortgage?
Yes, a director of a liquidated company can still get a mortgage, but it may be more challenging. This is because lenders may view you as a higher risk due to your association with a business failure.
Here are some factors that lenders may take into account:
Credit score: A business liquidation doesn’t necessarily directly impact your personal credit score. However, if you had personal guarantees for business debts that couldn’t be paid, this could negatively affect your credit history.
Recentness of liquidation: Lenders may be more willing to lend if the liquidation was several years ago and you’ve since demonstrated financial stability.
New business: If you’re now running a new business, lenders will want to see its financial history and stability. Many lenders require two to three years of trading history, though some may accept one year.
Personal income: Your ability to draw a consistent income from your current business will be a key factor for lenders.
Deposit: A larger deposit could help to offset the lender’s perceived risk. This reduces the loan to value (LTV) ratio of the mortgage, which lenders often see as positive.
Explanation: Lenders may want an explanation of the circumstances around the liquidation. If it was due to factors outside of your control, they may be more understanding.
Getting a mortgage in these circumstances can be complex, and many high street lenders may be reluctant to lend. Therefore, you might want to consider working with a specialist broker who has experience with complex cases or adverse credit mortgages. They can help you find lenders who are more likely to accept your application and guide you through the process.
It’s essential to be upfront and honest about your history and financial situation. Providing accurate information will give you the best chance of a successful application. Remember, every lender’s criteria are different, so if one lender declines your application, another may still accept it.
Can a company director take out a buy-to-let mortgage?
Yes, a company director can absolutely take out a buy-to-let (BTL) mortgage. In fact, buy-to-let mortgages are a common way for individuals, including company directors, to invest in property.
Here are a few key points to note:
Personal income: Just like with a residential mortgage, lenders will want to assess your personal income to ensure you can cover the mortgage payments, particularly during periods when the property might be vacant.
Rental income: For a BTL mortgage, lenders also consider the potential rental income from the property. They typically want the rental income to be 125%–145% of the mortgage payment, depending on the lender and your tax status.
Deposit: BTL mortgages generally require a larger deposit compared to residential mortgages, typically around 25% of the property’s value, although this can vary.
Age restrictions: Some lenders have age restrictions for BTL mortgages. They might require you to be under a certain age (often 70 or 75) at the end of the mortgage term.
Limited company buy-to-let: Many company directors choose to buy rental properties through a limited company structure, especially if they are higher or additional rate taxpayers. This can potentially provide tax efficiencies, but it also involves more complex accounting and possibly higher mortgage rates.
Can I hire a mortgage broker?
Yes, absolutely. Hiring a mortgage broker can be especially beneficial for company directors and other self-employed individuals. A mortgage broker is a licenced professional who serves as an intermediary between borrowers and lenders. They can guide you through the mortgage process and help you find a mortgage product that fits your needs.
Here are some reasons why you might consider hiring a mortgage broker:
Expertise and advice: Mortgage brokers understand the market, lender policies, and the complexities of the mortgage process. They can provide expert advice tailored to your situation and help you understand your options.
Time and effort: Mortgage brokers do most of the legwork for you, including gathering documents, pulling your credit history, verifying your income and employment, and applying for loans with different lenders. This can save you a lot of time and effort.
Access to more lenders: Some lenders work almost exclusively with mortgage brokers, so working with a broker can give you access to a wider range of mortgage products that you might not find on your own.
Better rates: Mortgage brokers often have the negotiating power to get better interest rates or lower fees from lenders, which can save you money over the term of your mortgage.
Easier approval: For those with less-than-perfect credit or unique income situations, like company directors, a mortgage broker can help you find lenders more likely to approve your application.
In conclusion, securing a mortgage as a company director in the UK can present its own unique challenges due to the specific ways directors often draw income and the sometimes more complicated nature of their financial situation. However, this certainly doesn’t mean it’s an unattainable goal.
By maintaining thorough and accurate financial records, understanding how different types of income may be assessed by lenders, and potentially enlisting the services of a specialist mortgage broker, company directors can successfully navigate the mortgage process. It’s essential to understand that every lender has different criteria, and a rejection from one does not necessarily mean a universal denial.
Whether you’re seeking a residential mortgage, a buy-to-let mortgage, or looking to remortgage your property as a company director, keep in mind that understanding your financial position, conducting thorough research, and seeking professional advice when needed are the keys to securing a mortgage that fits your circumstances and financial goals.
Remember that the property market can be a complex and fluctuating environment. But with preparation, persistence, and the right professional guidance, the journey to owning your dream property or expanding your investment portfolio is absolutely possible.