Getting A Mortgage As A Company Director
Getting a mortgage as a company director can be difficult if you don’t know where to start your research. Lucky for you, you have come to the right place! At Get Me My Mortgage we have a network of specialist brokers with vast experience securing mortgages for the self-employed. Whether you only have 1 years trading accounts or have an extensive trading history it is a good idea to seek the advice of an experienced mortgage broker that will be able to package your application and put it to the right lenders to maximise your chances of getting approved and also to get you the best rate.
The reason that it is more difficult for company directors to get a mortgage is due to the added complexities of your income. Mainstream lenders are geared toward employed people with good credit history, if there are any bad credit issues or complex income streams then it will fall out of the automated system most lenders use when making lending decisions. It can be frustrating to think that your employees will actually find it more straight-forward to get a mortgage than you will!
Getting the right information will make it easy for you to get a mortgage as a company director. The reason many self-employed mortgage seekers can struggle is due to many mainstream lenders lending policies relating to income requirements. Some will apply direct and be declined before.
The requirements for banks to grant mortgages for company directors vary from lender to lender. You may find if you apply via your own bank or a popular high street bank you may not be able to get the amount that you require due to the bank not taking all of your income into account. Finding the right broker with the knowledge and experience is key for you to get the best deal and the amount you require especially if you have a complex income or only been trading a short time. Our specialist will be able to take you through the process and put your application to the best lender depending on your circumstances.
You will know doubt have come across other brokers who are ‘whole of market’ or been recommended a broker by a friend. This doesn’t mean that they will have the knowledge of specialist lenders or the self-employment mortgage market. Finding the best broker for your situation is paramount and our brokers are specialist in the self-employment market with the knowledge and experience to really help.
Application criteria for Director Mortgages
As stated above there are many lenders out there that are more than happy to offer mortgages to limited company directors, even some of the big names are now opening up there criteria to accommodate you. In general it is more the specialist lenders who are more flexible with assessing director’s income. Manual underwriting is a big positive with specialist lenders who will assess customers on a case by case basis instead of an automated system designed for the mass market.
Each lender has different ways of measuring income and some will take income into account that other won’t which means that you may be able to get a much larger mortgage with some lenders than others. In general the minimum lenders will take is one year of trading so if you have been trading under one year it is best to wait until you have a full years’ worth of accounts before applying for a mortgage. There are certain exemption for example doctors that have just set up a limited company but there must be a contract in place to use as evidence of ongoing income. There are more lenders willing to consider applications from company directors if the company has been trading for more than 2 years. If you have been trading for more than 5 years there will be even more lenders that your broker can approach to find you the best deal.
What deposit will I need?
Similar to straightforward mortgages typically you are able to lend up to 95% of the value of the home which means at a minimum you will need to put down a 5% deposit for your mortgage. With more specialist lenders that lend for more complex situations they may require a larger deposit of between 10-15%. The main reason for a larger deposit is to mitigate risk to the lender. This is why if you have any adverse credit you may need a much larger deposit to secure a mortgage. Although you can get 95% mortgages as a company director it will all depend on your personal circumstances and your broker will be able to assess you and apply for the best product to suit your needs. In general the larger the mortgage the larger the deposit will need to be. For homes over 1 Million you will need a larger deposit sometimes as high as 20% to ensure there is minimal risk for the lender.
How lenders work out Income
This is where borrowing and criteria differs the most from general mortgage applications from a salaried employee. If you are maximising your income through tax efficiency methods such as retaining profits in your company or taking a low monthly wage with a larger dividend it will have an impact on how some lenders view your income. While it is a positive for you financially to structure your income this way it can limit the number of lenders willing to consider your application and it can affect your borrowing ability with some lenders.
Niche lenders that have more experience and appetite for self-employed mortgage applications understand that your salary may not be the full picture. These lenders are more favourable and are more willing to understand your income and assess you with the full picture.
For the majority of lenders and especially high street lenders they will only consider your drawings from the business as your income. This will include your salary drawing and any dividend drawings. There are specialist that will be able to take into account retained profits if you are finding you cannot get the amount you need our brokers will be able to help in this situation. It can have a big impact on your affordability and the amount you are able to borrow.
How much can I Borrow?
Lenders will typically base the borrowing level that they are willing to lend on a multiple of your income, broadly speaking between 3.5 to 5 times income is most common. Some lenders will go to 6 times but other strict criteria will need to be met for this high a multiple. Each lender will be different, your broker will take this into account during the initial fact find and will find suitable lenders that are more likely to offer you the amount you require. There are some instances when lenders may offer a lower multiple to ensure that the risk level for them is low. This is usually the case with customers with bad credit.
This is an example of how different lenders will assess your income and how much of a difference it can make. If you had drawing from the business in the last year of £40,000 and your share of the company’s net profit was £100,000 and let’s say the lender is using an income multiplier of 5. With Lender A who doesn’t include retained profits the maximum you will be able to borrow will be £200,000 (5 x £40K). Lender B who is a specialist lender who takes into account all of your income including retained profits will assess your maximum borrowing at £700,000. You can see the big difference, this difference can have a huge impact on the type of property you can buy.
Proving My Income as a company director
For director mortgages lenders will need you to provide the full finalised accounts and sometimes will also require your SA302 End of year tax calculation from HMRC. Lenders will need a minimum of one full tax year but more often than not they will want two or three years, this allows them to build a fuller picture of your finances and potential future finances.
Lenders will also ask for copies of your personal and business bank statements and this will usually be 3 – 6 months’ worth of statements.
Business recorded loss will it affect my chances of getting a mortgage?
If your business has recorded a loss in the last 3 years it can make it very difficult for you to get a mortgage. Declaring a loss will indicate that there is a potential lack of reliability of your income, this will increase the risk of lending. The longer ago the loss was recorder the more chance you have of getting a mortgage through a specialist lender. If it was in the last 12 months then the chances of getting a mortgage are very low. If this is the case then it is a good idea to wait until your business is financially stable before applying for a mortgage.
We can help
At Get Me My Mortgage we have a network of specialist brokers with the experience and knowledge to help you through the mortgage process. Give us a call today on 0161 209 6700 or fill in one of our enquiry forms to arrange a call back