Mortgages for Company directors
Mortgages for Company Directors can be raised based on PAYE and Dividend Income, and also on Retained Profit. We can assist where trading history is minimal, profit has fluctuated, or the trading situation is particularly complex.
In fact, whatever the issue, we can arrange mortgages for Company directors according to their mortgage needs.
Mortgages for Company directors
If you run your business as a limited company, you will usually have a shareholding in that business.
If you do not have a shareholding but are still a company director, the lender considers you an employee – in fact, some mortgage lenders will underwrite you as an employee if you own less than 20% shareholding of the limited company.
If you have shares in the limited company, the lender will want to see the accounts of the business and will be interested in the income you derive from the business and in what form it comes to you. You will be classified in terms of borrowing as a self-employed person and fall under many lenders self-employed criteria.
Dividends are a share of limited company profits paid to shareholders by the company on the advice of the board. In a smaller limited company, the ‘Board’ are also typically the shareholders and therefore dividends are a natural way of paying directors income from the business.
Dividends are subject to income tax and considered as part of the directors income by most, but not all, mortgage lenders.
If a limited company makes a level of profit which is not taken out as dividends by the shareholders, this is known as retained profit (as it is retained within the business).
Mortgage Lenders can be particularly cagey about using retained profit to support a mortgage application from a company director. The view is that the retained profit, has not been declared as a dividend and a difficult trading period for the business could see it swallowed up and not available to the shareholder or director as income.
Mortgage underwriting for Company directors
A handful of mortgage lenders will consider PAYE, dividends, and retained profit from a company director when underwriting a mortgage – however, each lender’s approach to this differs.
The majority of lenders consider retained profit only after tax (Corporation Tax) has been allowed for.
There are some lending sources that will consider retained profit before tax which is clearly the most flexible and useful approach.
Proving your income
Limited companies will normally use the services of an accountant. Lender’s will often obtain the information they need to underwrite your mortgage from your accountant.
Sometimes, your mortgage lender will ask for the accounts for the business, occasionally they work on an accountant’s reference or letter.
The accountant’s reference needs to be provided on a specific form supplied by a lender and known as an ‘accountant’s certificate’. The accountant’s certificate will usually ask for PAYE and dividends received, with figures required for the past two to three trading years. Even if a mortgage lender does not consider retained profit in it’s calculations, it will want to be sure that the level of dividend received by the applicant can be supported by the profit from the business. If lenders see a trend of dropping profits, the alarm bells will ring and it could affect your ability to raise a mortgage.
If you do not have three years trading record, there are a few mortgage lenders that will consider you.
If you are not prompt in putting your accounts together or submitting your tax returns this can cause an issue. Mortgage lenders need the most recent provable period of trading profit to have ended within the past 18 months.
Fluctuating profit and income for mortgages for Company directors
Varying profit and income can add complications to your mortgage application. A dip in profits needs to be explained to the lender and handled in the right way on application. A sudden and marked rise in profits can sometimes be more of a hindrance than a help to a mortgage application.
Most lenders will take a two or three year average when calculating accessible income and this is not always helpful to the applicant, however Mortgage321 can access lenders who accept just 1 year accounting period.
Deposits from Company funds
If your deposit money is coming from retained profit held in the form of cash within the business, be aware that this can be an issue for lenders. Lenders do not like to see large sums of cash leaving the business just as they are being asked to make a lending decision based on the continued trading success of that business.
We have even seen this remain an issue for lenders after the accountant has confirmed that the loss of the funds will not affect the ability of the business to trade effectively.
A smarter approach is to move the cash out of the business and into your personal account a few months before you apply for your mortgage.
Mortgages for Company Directors are not a simple application for a mortgage lender to consider due to the considerations listed above. Therefore we recommend you do not approach lenders direct.
If you approach the wrong mortgage lender you could waste time, money, and put credit searches on your record unnecessarily.
For this reason, you should speak with Mortgage321 to help you arrange your mortgage as we specialises in assisting the self-employed and Company directors.
Make sure your accountant is ready to assist in your mortgage application by responding promptly to requests for information. Have copies of the accounts ready (if available) signed by both the directors of the business and your accountants. Obtain your HMRC tax calculation and tax overview documents from either your accountant or HMRC so that they are available to the lender.
If you need a limited company director mortgage or re-mortgage – contact us now.