Securing a mortgage can be a complex process if you don’t fall into one of the neat categories. Those with a full-time salaried income will typically find it easier to secure a mortgage than those who are self-employed or a company director. Company directors will usually have a more difficult time securing a mortgage, while those they employ will find it much easier.
While getting a mortgage as a company director might be more complex, it certainly isn’t impossible. Many company directors secure mortgages every year, so if you’re hoping to get on the property ladder, read on to discover how to make this process easier.
The short answer is, yes! Company directors can get a mortgage, but the process for applying for a mortgage will be very different. Proving your income might be a more complex process than for a typical full-time worker. The way company directors get paid is very different from a full-time, salaried employee. And this makes it difficult for lenders to make a quick assessment of how much a person can afford to pay back.
Before the 2008 financial crash, self-employed and company director borrowers could simply state their earnings on a mortgage application. This was known as a self-certified mortgage and it is one of the factors that led to the financial crash.
Many borrowers would overstate their earnings to purchase a bigger property but were then unable to pay back their mortgage. Lenders are now unable to offer this type of mortgage and instead apply stringent affordability checks for the self-employed and company directors.
All lenders will want to check that a mortgage is affordable before they release any funds. This is done through a look into your financial past, and a look into your financial present and future. Your past can be seen through your credit score, as this will outline your past responsibility with money and if you have been able to repay on time.
To determine your current financial situation, and where you might be in 5, 10 or 15 years, lenders will also look at your company finances. As we outlined above, a salaried worker can prove their income through simple things like an employment contract, payslips or bank statements. For company directors, this is a little more complicated.
You will need to share your company accounts, usually for the past three years. Some lenders will accept two or even one years of accounts, but this isn’t very common. Almost all lenders will want to see that you have been trading for at least one year before they will consider a mortgage application.
Limited company directors get paid in a different way to most workers. Your accountant will likely advise you to draw your income in a particular way to help manage your tax liability. These are all completely legal processes, but unfortunately, they can impact your ability to secure a mortgage.
Many company directors will receive a basic salary and then dividends. However, it can be useful for tax purposes to leave some income in the company as company-retained profits. In an ideal world, all lenders would understand that a company director’s basic salary is not an accurate reflection of their full income. Sadly, the mortgage sector is still catching up.
The best step is to work with a lender who understands your situation. And the best way to find one is through a specialist mortgage broker. A mortgage broker with access to the whole market will be able to navigate the choices and help you to choose a lender more likely to accept your application.
A specialist lender will be able to look at your different income sources to make a more accurate assessment of your income. This will include your salary, dividends, and any company-retained profits. If you are hoping to get on the property ladder, it’s worth speaking to your accountant about the best way to prepare for this big life event.
No, once you have been approved for a mortgage, you will have access to all of the same lending products as full-time, salaried workers. This means that you don’t have to apply for a special type of mortgage. As with all lenders, the bigger the deposit, the better the terms. So if you can afford to increase your deposit amount, it’s worth doing so to secure the best possible deal.
The only instance where you might need a larger deposit would be if you are purchasing a buy-to-let property, or if you are planning to buy a high-value property. Properties worth over £700,000 may be subject to higher deposits, as this will help to mitigate the risk to the bank.
