As a self-employed director of a limited company, some mortgage companies won’t put in the extra effort to understand your income. They might tell you that you won’t be able to find a mortgage, even if that isn’t always strictly true.
In this Guide, you’ll find everything you need to understand mortgages as the director of a limited company. We’ll explain your different options, what can be counted towards your income, and more.
The short answer is: yes. If you’re operating as the director of a business that you own or co-own, then you count as self-employed in the eyes of most mortgage lenders.
But don’t worry! You can still apply for a mortgage, and are just as likely to be approved after mortgage review, as long as you can provide the right information. The process can just be a little bit harder.
There are a number of reasons that some brokers might be reluctant to give mortgages to you if you are the director of a limited company. Most of it comes down to cautiousness about the reliability of your future earnings.
In general, directors are advised to take their income in the form of dividends, rather than Pay As You Earn (PAYE) payments. This means that your personal earnings depend solely on the performance of the company, which can fluctuate. Or maybe rather than paying dividends, your limited company is keeping retained profits, which doesn’t count towards your income. Or perhaps you simply haven’t been trading for a very long time, and don’t have enough accounts yet?
All of these factors make your income more complex than people who are employed. Many mortgage lenders don’t like complex incomes. It takes them longer to process, understand and work out your affordability. So they favour simple mortgage applications. If you have a complex income, a specialist lender is more likely to be flexible. They tend to have less strict lending criteria and don’t mind putting in the time to understand your limited company director income.
If you need a specialist lender, let us match you to the perfect mortgage broker who’ll know what specialist lenders are happy to lend to limited company directors like you.
As the director of a limited company, there are a few simple things you’ll need to be able to provide as part of your mortgage application:
Your trading history
Proof of steady income
A good credit score
While finding this information may be a little complicated at first, we can make the mortgage application process as simple and as straight-forward as possible.
Some mortgage advisors will claim that you need three year’s worth of accounts in order to apply for a mortgage. That may have been true in the past, but not anymore.
There are now plenty of specialist providers who are perfectly willing to approve applications with only twelve months of trading accounts, or fewer. These records can span two different tax years, as long as they give an uninterrupted twelve month view of your company’s earnings.
If you’ve just gone self-employed and have limited trading history and accounts, it’s still possible to be approved for a mortgage as long as you work with a specialist mortgage broker. They’ll be able to advise you on the kind of evidence the lender will need to prove your income. Our platform will match you to a specialist mortgage broker who has made mortgages possible for limited company directors with limited accounts, get in touch and make an enquiry.
One thing that’s guaranteed to hamper your mortgage application is evidence of varying income. The majority of lenders will want to look at a broad average of your income, which can be good or bad depending on your circumstances.
While each lenders’ requirements may differ, there are three types of document you will generally need to provide as proof of your income:
Between one and three years’ of accounts, certified by an accountant
Copies of statements for all your business and personal bank accounts
Most of the time, lenders won’t consider retained profit to be part of your earnings. This is why they generally prefer to look at dividends as a measure of income instead.
Your credit score is a single number that gives an indication of the overall state of your finances.
Find out your credit score, with our Guide: How to find out your credit score.
Your credit score is based on your personal credit history, and is independent of your limited company. It factors in a number of different financial considerations, including how many open accounts you have, your total debts, assets, and repayment history.
The higher your credit score, the easier you will find it to have your mortgage application approved — although that doesn’t mean a bad score will automatically result in rejection.
If your credit score is low, there are a number of ways you can raise it. Read more in our Guide: How to improve your credit score before you apply for a mortgage.
General advice for deposits says you’ll need 10-15% of the total property price that your mortgage is for. However, there are a few other variables to consider when you are a self employed business owner:
Your credit history
How long your limited company has been trading for
Issues with your credit history that might raise red flags would include any county court judgements (CCJs), late payments, missed payments, bankruptcy or repossessions.
While it may not change your chances of being approved for a mortgage if your company has been trading for a longer period of time, it can allow for a lower deposit or give you access to a better rate.
The problem with retained profit (as opposed to income paid to employees as PAYE, or to directors through dividends) is that most lenders won’t consider the money you yourself have actually earned. Instead, they think of it as a safety net to support your limited company during difficult times.
If you want a lender to count retained profits towards your earnings in order to get a mortgage, then you’ll probably need to get a mortgage with a specialist lender rather than a mainstream one. Do be aware they’ll want to be absolutely certain of your finances before they make a decision, and may ask for extra proof of you and your company’s income.
Starting a new company is hard work. Even the most successful ones can expect to make a loss at the beginning, and sometimes won’t see profits for years.
Some mortgage lenders may be put off if your accounts show a loss for your limited company. But that doesn’t mean it’s impossible to get a mortgage. We work with specialist brokers who understand the difficulties with owning and running a small business. If your losses are typical of the teething problems all companies go through, or if they are older than the last two years, then you still may be able to have your application approved.
Our Mortgage Experts are fully-qualified with experience in bad credit, self-employed and complex mortgages. They have a proven track record of getting mortgages for people who’ve been rejected elsewhere.
Applying for a mortgage or understanding your options shouldn't be confusing, yet there are just so many myths doing the rounds and it's not easy to know where to turn to get the right advice.
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