Limited Company Director Mortgage
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Limited Company Director Mortgage (Part 1)
Stacey Gulliver explains how the mortgage process works if you are a director of a limited company, in the first of two episodes.
How does the mortgage process work for a limited company director?
You’re self-employed, so we’re going to need to have the same documents as for anyone who’s self-employed. But sometimes we can use a little bit more income for affordability.
I will go into that on some of the later questions, but generally it’s very straightforward.
Are there any specific mortgage products designed for limited company directors?
Not really. If you’re looking at residential mortgages, you are treated as self-employed – I would just do a normal application and use your self-employed income.
Do many lenders offer mortgages to limited company directors?
All high street lenders will lend to the self-employed, and we’ve also got other lenders available. That’s not a problem at all.
Some lenders may take more income into account for affordability when you have a limited company, which can be beneficial. That’s something we can look at for you on an individual basis.
What are the eligibility criteria for obtaining a mortgage as a limited company director?
If you’ve been self-employed for two years, that’s a big bonus. If you’ve only been a limited company director for a year, there are still options available.
Sometimes people start off as a sole trader and their accountant then advises them to change to a limited company. As long as you’re in the same line of business, that’s a natural progression for a company.
For mortgages, that usually doesn’t make any difference, but some lenders might need to see a track record of the switchover. Most will use common sense and are happy to see that the progression in the company is positive, hence you’ve changed to a limited company.
What documents are typically required when applying for a mortgage as a limited company director?
There is more than for a sole trader. First of all, we would have your limited company accounts, which ideally show the last two years’ figures. Then I would have the supporting SA302s, also known as tax computations or tax calculations.
I also need two years’ tax year overviews. Often three months’ business account statements are required, too.
How do lenders assess the income of limited company directors for mortgage purposes?
This is where the fun and games begin. Most lenders use your salary and your dividends as your basic income. But a few lenders like to mix things up and will use retained net profits and your salary.
It can be quite a beneficial way to maximise a mortgage if you have a nice amount of retained profits in the company. We can use those and your salary. It’s all done on an individual basis – we can have a look and see which way would work best for you.
How do lenders view dividends and retained profits when considering a mortgage application from a limited company director?
Most high street lenders will use salary and dividends, but we have the option to use retained net profits. We can have a look – if you don’t need to maximise your mortgage, it could be beneficial just using salary and dividends. It’s all assessed on an individual basis.
Can I still get a mortgage if I have a limited trading history as a company director?
Yes, as long as it’s a year of history, that’s good. If it were only six months, we’re going to need to wait a little bit longer, unless you’ve been working in the same field.
Let’s say you were employed as an IT specialist and then you went self-employed. Various lenders might look at that as natural progression, especially if you’ve got a good amount of income coming in. It could possibly work, but ideally you need that one year’s history.
Are there any advantages or disadvantages to getting a mortgage as a limited company director rather than sole trader?
It can be more beneficial for a limited company because, as I mentioned, you can use retained net profits in the company. For a sole trader, that isn’t an option. So if we’re looking to maximise the affordability, that could be beneficial.
Are there any restrictions or limitations on the types of properties that can be purchased as a limited company director?
Not really. Again, you’re classed as self-employed, which is just about using your income from the company for affordability. There are no specific restrictions on property type.
Do you have anything to add before we come back with part two?
It’s always best to have a chat with us to see what options we’ve got available. Sometimes, you might need time to nurture it. If your business accounts for the first year were on the low side, it could be worth building the business up and waiting a year or two until you’ve got a better history.
Hopefully, each year your income will be going up and up, which gives us more to play with.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
For specialist tax advice, please refer to an accountant or tax specialist.
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Limited Company Director Mortgage (Part 2)
Stacey Gulliver continues the conversation on limited company director mortgages, in the second of two episodes on this topic.
Can I use my limited company profits or assets to support my mortgage application?
Yes, that’s a really good way of maximising affordability. If you do have retained net profit within the company, that’s something that we can certainly use, together with your salary.
It can make a big difference for affordability.
Are there any tax implications or considerations for limited company directors obtaining a mortgage?
It depends what type of mortgage you’re going for. If you’re seeking a Buy to Let mortgage, it could be beneficial for you to do it in a limited company name, but I would always suggest you speak to your tax accountant.
It will depend on your personal situation and how many properties you have. It’s best to get it right from the start, so talk to a tax accountant.
If you’re buying a residential property, that’s slightly different. There shouldn’t be any tax implications. You’re just a limited company director and we’re using your self-employed incomes to buy your residential home.
How can I improve my chances of getting approved for a mortgage as a limited company director?
It’s always best to keep an eye on your credit score. Your self-employment history is key, as well. Ideally, if your profits are going up each year, that’s excellent. It’s what an underwriter would like to see when they’re assessing a case.
They tend to use an average of the last two years, but if you happen to have a dip in income, most lenders just use the latest figures rather than an average.
So ideally, keep an upward projection – hopefully the company will be moving forward and making more money each year.
What is the typical interest rate and repayment term on a mortgage for a limited company director?
Your age will dictate the term. Most lenders will go up to 35 or 40 years, with an age limit of 70 or perhaps 75. That’s something we can look into – it’s not usually a problem.
Interest rates will be the same as any other mortgage. We can have a look at what all lenders are offering – you’re always eligible as a limited company director.
Can I use a mortgage as a limited company director to purchase Buy to Let property?
First of all, you’d speak to your accountant about setting up some SIC codes – these are company classifications for buying and letting out properties. Those will depend on what you want to do with this property, whether it’s a quick refurb and sale or something to let out.
Your accountant would set up a specific limited company for you. Again, we will use your self-employment income. Some lenders for Buy to Let have no minimum income requirement, and it’s all based on the rental income of the property. Others have a minimum income level of about £25,000.
How does being a guarantor for another mortgage affect my own eligibility as a limited company director?
The snag of being a guarantor for someone is that to get a future mortgage, you need to meet affordability on everything. You would need to afford both the new home and the property you’re a guarantor on.
There’s always the possibility that the person might disappear and you end up having to pay for that property. You also have to pay for your own mortgage on top. So affordability can be reduced if you are a guarantor.
Again, it’s all looked at on an individual basis. Depending how that’s set up, you may only be a guarantor for a limited time. If you’re going to be coming off it shortly, we could wait until then to apply for a new mortgage.
Can I remortgage a property as a limited company director? What are the potential benefits?
If you bought your residential property when you were employed and you now have your own company, we will be using your self-employed income. As long as that mortgage is affordable, and your income hasn’t reduced by going self-employed, there’s no reason why you couldn’t remortgage.
You’ll again need to have been doing it for one or two years. Otherwise, you could stay with your current lender – usually, you can do a straightforward product transfer without the need for any new affordability checks.
Sometimes I have clients who are employed at the point of getting the mortgage, but maybe five years later, they’ve decided to go self-employed. Once you’ve got a mortgage, you can stick with that lender until you’ve got the history of one or two years of being self-employed.
What happens to my limited company if I am unable to make mortgage payments on time?
We’re using your self-employed income from that limited company. As far as I’m aware, there’s no effect on the limited company. But if you default on your mortgage, that will go against you for future credit. You’ll find it difficult to get another mortgage, credit cards or loans, etc.
If you bought a Buy to Let in a limited company name and then the company was struggling and couldn’t pay the Buy to Let mortgage each month, there will be consequences for that. The lender will expect to be paid, whether it’s in a limited company name or in your sole name.
Can I transfer an existing mortgage held personally to a limited company if I become a company director?
If you have a residential mortgage, you’re unlikely to change it from a personal name into a limited company name. Again, it’s always best to speak to your tax accountant, but there’s probably no reason to do that unless advised by them.
If you bought a Buy to Let in your sole name and then you wanted to remortgage into a limited company, that isn’t quite as straightforward. You would have to sell it to the limited company.
You’d probably pay capital gains tax on that, plus stamp duty. So there are implications. Again, unless your accountant advises you to do that, it could be an expensive option.
I would always suggest that with Buy to Let, you should set it up correctly when you buy it – either in your sole name or the limited company name. That will save you having to pay out capital gains and extra stamp duty in the future.
Are there any additional costs or fees associated with obtaining a mortgage as a limited company director?
Doing a Buy to Let mortgage in a limited company name usually means you’ll have higher rates. Otherwise, you’re just classed as self-employed. There are no extra costs for that, unless the lender requires an accountant’s certificate. Your accountant might charge you for completing that. Apart from that, you’ll be treated as a normal residential customer.
What else do we need to know about a limited company director mortgage?
If you have any questions or any scenarios to explore, just come to us. We’ll look at the options available for you. There are lots of lenders and they all take criteria in different ways – and that can be very beneficial if you’re a limited company director.
It’s always best to have a chat through your case – we’ll see what we can do for you and hopefully get you the best possible deal.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
For specialist tax advice, please refer to an accountant or tax specialist.
