Limited Company Director Mortgages – how to get a good deal
It’s commonly considered more difficult for Limited Company Directors and the Self-Employed to get a mortgage. But as long as your company is prosperous and you have a good credit record, there’s no reason why you shouldn’t find a good mortgage deal.
Can I get a mortgage if I am a Limited Company Director?
If you have been in business for more than 12 months – but ideally two years or more – and your business is in good shape, you should find a suitable mortgage.
The challenge is to find the right lender. Many company directors pay themselves a nominal salary and take further money from the business as dividends. Some high street lenders will base their loan value on this salary and dividend, without taking into account any profits you are leaving in the business. This could restrict your borrowing.
Some specialist lenders are more welcoming to company directors and will base their offer on your company’s net profit – which can vastly increase the loan amount.
How much deposit will I need?
In terms of a mortgage deposit, the usual rules apply. It is best to aim for a minimum of 10%, but a larger deposit will always help. A higher deposit means a lower Loan to Value (LTV), which means more choice of both rates and lenders.
If you have a poor credit history you will usually need a deposit of at least 15%. Otherwise, it is possible to get a mortgage with a 95% Loan to Value – but at less competitive rates.
As with any financial product, make sure you can comfortably afford the repayments on your mortgage, especially if your business goes through a difficult period.
How do I document my trading history?
Once you’ve located suitable mortgage lenders you need to confirm a variety of information as part of the mortgage application.
You won’t usually have to create any specific reports. Lenders base their assessments on one or more of the following:
- Last two years’ company accounts, some accept just one
- Three months’ personal and business bank statements
- Self assessment forms (SA302) for the last 2 years
- Tax year overviews for the last 2 years
Your accountant will usually be able to supply these for you.
Possible risks with a Limited Company Director Mortgage
There are a few scenarios to be aware of if you’re a Limited Company Director seeking a mortgage.
- You’re in a business partnership. If you’re in a partnership, the loan amount could be based on your share of the net profit, so do the calculations up front to ensure you’ll be offered the amount of mortgage you require and are able to afford the property you’re aiming for.
- You have changed trading style recently. If you have only just become a limited company some lenders won’t accept you. Even if you were running the company as a sole trader for years, most lenders will consider it a fresh business and want at least two years’ accounts. Therefore additional research is required to identify the lenders who will look at the whole picture of your self-employed journey
- Your business has reported a loss, or big fluctuations in income. If your business made a loss in its most recent year, you may struggle to gain lender approval. Lenders usually take an average business performance over the past 2-3 years to assess affordability, which evens out fluctuations. Whether the retained profit is enough for approval will depend on your specific situation.
- You have an adverse credit rating. Your credit rating is important to a lender. If your credit issues are fairly small and from several years ago, you should still be able to get a mortgage, but perhaps at less favourable rates (depending on the credit issue). If you have previously been declared bankrupt or have unpaid CCJs, you could find it difficult to get a loan unless you have a large deposit.
Limited Company Buy to Let mortgages
If you’re looking for a Buy to Let mortgage rather than a residential one, there are a few differences. A lot of landlords now set up limited companies to reduce their tax liabilities – but these are specific property businesses.
If you’re interested in buying a rental property through an existing business that is not property focused, this is more difficult, but not impossible. Like most mortgage options that are different from the norm, the best solution is to talk to a Mortgage Broker.
How can a Mortgage Broker Help?
The more complex your financial situation, the better it is to approach a Mortgage Broker. As appointed representatives, we provide tailored advice and support to help you find and apply for a mortgage.
Our Brokers here at Purely Financial based, are an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority. So each mortgage adviser can guide you through the mortgage process with professional advice, free of charge.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages