What is a limited company director mortgage?

Home / Andy's Blog / What is a limited company director mortgage?

What is a limited company director mortgage?

What are limited company director mortgages?
Table of Contents
    Add a header to begin generating the table of contents

    Purchasing a home is an exciting milestone in anyone’s life, but for limited company directors, the process can sometimes be more challenging. High street lenders often have stricter criteria for self-employed individuals, which means mortgage options can be more restricted.

    However, don’t despair: limited company director mortgages are specifically for self-employed business owners, so let’s find out how they work.

    Limited company directors can find it tough to get a competitive mortgage product. Here’s how you can get a great deal.

    Is it difficult for limited company directors to get a mortgage?

    Securing a mortgage as an Ltd company director can be more challenging than for an employed applicant due to the unique nature of self-employment income.

    Many lenders typically require a minimum of two years of accounts from self-employed people before considering an application. This can cause problems for the newly self-employed.

    Additionally, the self-employed often face fluctuations in annual income, which can raise concerns among lenders about their ability to make consistent mortgage payments. However, limited company director mortgages have emerged as a solution to these challenges.

    How do limited company director mortgages work?

    Mortgages for limited company owners take into account the specific circumstances and financial situation of the business owner. Lenders will be assessing affordability based on a mix of company’s trading history, director’s salary, dividends, operating profit and retained profits.

    Lenders typically request at least one year of limited company accounts from the company and personal tax returns to evaluate the borrower’s income stability. The mortgage terms and interest rates are determined based on the individual’s financial profile, credit history, and the size of the deposit.

    What are the benefits of limited company director mortgages?

    1. A limited company director mortgage allows for a more accurate evaluation of a director’s income by considering the company’s financial performance rather than relying solely on personal accounts. This flexibility can benefit those with variable net profits.
    2. You may be able to achieve tax advantages. For instance, mortgage interest can be offset against rental income from investment properties, reducing tax liabilities.
    3. Lenders can lend based on either the director’s salary and dividend paid (either the latest year or an average of the last 2) or their share of company’s net profit and salary taken. So if the company profit was £100,000 but the director and assumed shareholder only took £50,000 dividend, some lenders can use the £100,000 plus their salary towards affordability. This could potentially save a lot in tax but still achieve the mortgage needed.

    Considerations and downsides of taking a mortgage as a limited company director

    1. Products for company directors may have slightly higher interest rates compared to traditional products. This is because lenders perceive self-employment as a higher risk due to income volatility. However, many high street lenders can use company profits for directors as well.
    2. Some lenders may require a higher deposit from self-employed individuals to mitigate risk, but some lenders treat directors the same as employed applicants.
    3. Not all mainstream lenders offer these products, so borrowers may need to approach a specialist lender. These lenders cater specifically to self-employed individuals, providing tailored products and expertise in this niche market.

    Should you use specialist lenders for limited company director mortgages?

    The decision to use a specialist lender depends on individual circumstances. Specialist lenders have in-depth knowledge of the challenges faced by self-employed individuals and offer mortgages specifically designed to cater to their needs.

    They may also be more open to considering applications from those with less than three years of company accounts or more complex income structures.

    Get in touch with an experienced mortgage broker today

    Simmonds Mortgage Services is a specialist mortgage broker with experience to help you find the right lender and right mortgage for you. Specialist advisors can search the whole of the market to locate the best deal and help you make your mortgage application with minimum fuss.

    Call us today on 01184 693037 for up-to-date mortgage advice.

    FAQs about limited company director mortgages

    To learn more about limited company director mortgages, check out our frequently asked questions below or contact us today:

    Can I get a Ltd company mortgage if I have a poor credit history?

    Mortgages for company directors are available to those with a bad credit report, but the fees and interest rates offered are likely to be higher.

    How much deposit will I need?

    Sometimes lenders prefer a larger deposit, but there are products where you need only a 5% deposit.

    What are the eligibility criteria?

    Lender’s criteria will vary, but the factors that will be used to determine your eligibility when applying for a mortgage include how long your company has been running, the property type, your deposit and your credit history.

    What documentation will I need to show?

    You’ll need to show your income, expenditure, net profit, payslips showing your PAYE income and dividends paid to you for at least one years trading. You’ll also need to supply business and personal bank statements for the last three months and a copy of your credit file.

    Picture of Andrew Simmonds

    Andrew Simmonds

    Andrew Simmonds is the managing director at Simmonds Mortgage Services. He's been providing mortgage advice to home owners for many years.

    About Us
    See our other news articles
    Step-by-step guide to buying your first home

    Buying a house or other property for the first time can be...

    Read More
    Setting up a limited company as a landlord

    If you rent out one or more properties, you’ll need to pay...

    Read More
    Can a buy-to-let be used as an Airbnb?

    The short-let property market has grown substantially in the past decade as...

    Read More

    Google Reviews

    Google Rating
    Based on 315 reviews

    Request a Call-back

    Please complete our website contact form and a mortgage advisor will call you back, or book a meeting with us:
    Scroll to Top