Limited Company Director Mortgage
Your new home or investment property is just a mortgage application away. And with our expertise and tenacity, that property dream is closer than you think.
Get in touch for a no-obligation chat about how we might be able to help you.
What's On This Page?
Get In Touch
Home » Limited Company Director Mortgage
Limited Company Director Mortgage (Part 1)
Michael Tilston talks to us about mortgages for limited company directors. Episode one of two, recorded in September 2024.
How does the mortgage process work for a limited company director?
I suppose it’s a bit of a hybrid between employed and self-employed. Most lenders will view a limited company director with more than a 25% shareholding in a company as self-employed. They will subsequently ask for tax returns and tax calculations to see what income they’re drawing on a personal level.
Apart from that, the process for the mortgage is pretty much the same. There’s just a small difference at our end on how we note down the income, depending which lender we go to.
Are there any specific mortgage products designed for limited company directors?
Not so much, any more. In yesteryear the self-employed were given slightly different products, but that is generally a thing of the past now. You will have access to the same products that everyone gets – which I think is a plus rather than a negative.
Do many lenders offer mortgages to limited company directors? Is there a lot of choice?
Every single lender will. It just depends on how they view you and your income.
What are the eligibility criteria for obtaining a mortgage as a limited company director?
It’s the same as for everyone else. It is going to be down to income and how that income is read. That’s the part that is different, and it’ll probably come up in some of the other frequently asked questions.
When we look at the personal tax return, we can use salary and dividends, which is what a lot of lenders will use. That’s what the limited company director has drawn from the business.
But in some cases, lenders will use net profit and salary – the share of net profit from the business plus the salary you drew. That’s where you can get into the weeds, if you like, and why it’s worth speaking to people like ourselves.
We will look at the kind of lending you want to get to. A lot of limited company directors don’t draw a huge income out of the business because they’ll pay further tax on it. So we will always work out what’s going to be right for the client.
What documents are typically required when applying for a mortgage as a limited company director?
The normal requirements are your bank statements and your ID, et cetera. Alongside that, we’d normally ask for two years’ tax calculations with corresponding tax year overviews, plus the last two years’ company accounts. That gives us a very clear overview of everything.
How do lenders assess the income of limited company directors for mortgage purposes?
That’s where a good broker will come in. We know which lenders will use salary and dividends, from your personal tax calculations, and which lender will use salary plus net profit from the business.
Depending on which one we’re using, we’ll get into what the income multiples look like. That’s generally what they’re going to use to assess the income.
How do lenders view dividends and retained profits on a mortgage application from a limited company director?
That’s when we start getting into the more specialist stuff. Let’s say, for example, that as a limited company director you draw £50,000 a year. That’s a common figure because it keeps you in the basic rate threshold and you don’t pay the higher rate of income tax. It might be a £10,000 salary plus £40,000 in dividends.
But perhaps the business actually had a net profit of £100,000. Some lenders would look at the salary and add in that £100,000, to actually use £110,000 worth of income.
You can imagine the amount you could borrow against £110,000 of income compared to £50,000 – it’s dramatically different. It might mean the difference between borrowing £225,000 (if you’re using a 4.5 times income multiple) to £460,000 or even £500,000.
Can I still get a mortgage if I have a limited trading history as a company director?
It depends on the circumstances. Often people move from sole trader to limited company director for tax purposes. I would always say to speak to an accountant about that. They’ll normally guide you as to the right time to do it, because there can be a tax saving.
If you’ve gone from sole trader but you’ve only been a limited company director for a month, that’s absolutely fine. Lenders view it as one and the same thing, as long as you’re the only shareholder in the business.
But you’d normally need ideally two years of self-employment as a company director. Each lender is different, so you do need to speak to someone who knows what they’re doing with limited company directors, to get the most for you.
We had an example recently where a client had been told they could borrow £300,000. But within 15 minutes of chatting to the gentleman, I found I could get him £600,000. There just wasn’t that level of knowledge from the previous person he’d spoken to – who wasn’t from our organisation.
Are there any advantages or disadvantages in getting a mortgage as a company director rather than a sole trader?
Absolutely none. Don’t worry about it. If you’re going from sole trader to limited, it’s really not a problem.
Are there any limitations on the types of properties that can be purchased with a limited company director mortgage?
No – it’s all good. Unless of course, you’re trying to do it for anything work related. You wouldn’t be able to buy a property and run a shop in the back, for example.
Do you have any last thoughts before we come back with part two?
Just what I say with all of these – speak to an expert, someone who knows what they’re looking at. That’s the key to getting the right thing for you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Tax treatment varies according to individual circumstances and is subject to change.
There may be a fee for mortgage advice. The actual amount you pay will depend on
your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount
borrowed.
Speak To an Expert
Come on in and be quite forward with what you’re after – just be very honest with your mortgage broker. It’s good to make sure that we know absolutely everything about you. That way we can’t be blindsided by a lender. An open book policy is very good when coming to see your mortgage broker.
Limited Company Director Mortgage (Part 2)
Michael Tilston continues the conversation on mortgages for limited company directors. Episode two of two, recorded in September 2024.
Can I use my limited company’s profits or assets to support my mortgage application?
Yes, you can. We touched on it a bit in part one, where you can use the profit in the business almost as if it’s a personal income.It’s knowing how to read it in the sets of accounts, which is generally what a lender is going to be requesting. Not every lender does it.
There are also some things in the accounts that can even perhaps be added back in. That’s when we really start getting into the specialist stuff. Maybe a business owner has bought a big piece of equipment, but it’s a one-off purchase. We have lenders who might add that back into the overall profit figure – because it’s not going to have to be purchased again for 20 or 30 years.
Are there any tax implications or considerations for limited company directors obtaining a mortgage?
Not for obtaining a mortgage, because lenders understand why you may not have drawn the income to begin with. You may have had enough money in the business to take a much larger personal income, but didn’t want to for tax purposes. You don’t get penalised for that.If you had £100,000 in the business but you only took £50,000, they will use the £100,000. They don’t require you to actually draw it out and pay further income tax on it.
With anything tax-related, do speak to a proper accountant, of course, but there aren’t any tax implications for the mortgage itself.
How can I improve my chances of getting approved for a mortgage as a limited company director?
Make sure that any income you’re drawing is also backed by the business – that is, don’t draw more out of the business than it can afford.If your company only made £50,000 profit and you’re drawing £75,000 a year, funnily enough, the business isn’t probably going to be around for long. A mortgage lender will take one look at that, see that it’s not sustainable and won’t proceed.
Otherwise it’s the same as for everyone else. Make sure you’ve got a good credit score and your accounts are up to date. That’s very important. Ensure any tax liabilities are paid to HMRC.
The only time that’s not the case is in the current tax year, because of course, they’re not due for a few more months.
What is the typical interest rate and repayment term on a mortgage for a limited company director?
The only thing that can affect the term is the type of job someone has, but that’s not necessarily limited to limited company directors. You could have a physical role, as opposed to a desk job, which has an effect when taking mortgages into later life.If you want a mortgage past 70, for example, it might be fine if you’re an accountant and sat behind a desk most of the day, but you’re less likely to be approved if you’re a brickie or a tradesperson where it’s less likely you will be working to 75 or 80.
Can I use a limited company director mortgage to purchase a Buy to Let property?
Yes, it’s the same for everyone, so being a director won’t harm your chances. It’s straightforward to get a Buy to Let mortgage for a limited company director..How does being a guarantor for another person’s mortgage affect my own eligibility as a limited company director?
This again isn’t necessarily just for limited company directors. If you guarantee someone else’s mortgage, a lender will stress test that mortgage against your income.So it’s more about that additional outgoing – because of course, if the other person defaults they will come after you to pay the mortgage. Being a guarantor will be on your credit file and you are liable for that mortgage too.
Can I remortgage a property as a limited company director? What are the potential benefits?
Yes, of course. It’s all going to be down to your income, and there are no more benefits for a limited company director than for anyone else, really. The only thing you I would say is that most lenders won’t like it if you’re trying to withdraw money from your property for business purposes.What happens to the limited company if I am unable to make mortgage payments on time?
Generally, nothing. It’s down to the individual. You are personally taking the mortgage and the limited company is a separate legal entity. It would only be affected if, for some reason, the business has guaranteed the mortgage, but that’s very unlikely and not really something we see done anymore.Can I transfer an existing mortgage held personally to a limited company if I become a company director?
These questions are now moving into a different area: limited company Buy to Let. That’s where you’re the director of a company you’ve set up to buy and rent out property. But there are also limited company directors buying properties in personal names. This question breaches both, if that makes sense.Perhaps you’ve bought a property, lived in it then moved out and started renting it to tenants. For tax purposes, you might then sell that property to your limited company – so you no longer have that personal tax liability on the income from it.
It can be done. It’s classed as a full sale and purchase and treated as such in the eyes of HMRC. You would end up having stamp duty and legal costs, because it’s going from a person to another legal entity – that limited company.
Are there any additional costs or fees associated with obtaining a mortgage as a limited company director?
Not on the residential side. If you’re buying a property in a limited company, then yes, but that’s slightly different. That’s the Buy to Let side.If you’re buying property as a separate entity, you’ll need independent legal advice and personal guarantees. The rates might be a little bit higher on a limited company Buy to Let. But on the residential side, it’s the same as for everyone else.
How can a mortgage broker help with limited company director mortgages?
You need to speak to someone who knows what they’re doing. When you look at limited company mortgages, the Buy to Let side is very much a speciality of ours and something we do a lot of here.We also look after many limited company directors buying their own homes, where it’s about reading that income. It might sound as though that’s quite easy, and it is once you’ve done it for years.
But a lot of people we speak to – including people who’ve worked for banks for many years – don’t necessarily know how to read a set of accounts.
They show what the company has made, what the directors earned and if anything else can be added. We mentioned those one-off purchases – or even large pension contributions done through the company to save on tax. All of these little things add up.
We know this stuff inside out, but it’s very daunting if it’s something you’re coming across for the first time. So speak to an expert. I say it every time, but it’s very much true – and even more so in this case, I’d say.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Tax treatment varies according to individual circumstances and is subject to change.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.