Mortgages for limited company directors

If you run your own limited company, you probably pay yourself in a way that suits the business and your tax position, not in a way that suits a mortgage application. A modest salary, dividends set with your accountant, and profit left in the company for growth or a quieter year. That is sensible management. It just doesn't look much like a payslip, and that is where most of the difficulty starts.

This is the core of what we do. Peter has been advising since 1999, including three years running a mortgage desk inside an accountancy firm, and many of our clients come to us through their accountants for exactly this reason.

How lenders assess company director income

There is no single method. Broadly, lenders fall into three camps:

• Salary and dividends drawn. The most common approach. The lender uses what appears on your SA302s and tax year overviews, often averaged over two years.
• Salary plus your share of net profit. Some lenders look at the company's profit after corporation tax and use your share of it, alongside your salary. If you leave profit in the business, this can make a real difference.
• Profit before corporation tax. A smaller number of lenders use the company's profit before corporation tax, again in proportion to your shareholding.

On the same set of accounts, these three methods can produce very different figures. Choosing the lender is often more important than the rate, because the rate only matters once the income has been read properly. We explain this in more detail in the income your lender never sees.

Shareholding, multiple companies and growth

A few details tend to decide how a director's case is treated.

How much of the company you own

Many lenders treat you as self employed once you hold 20% or 25% or more of the shares. Below that, some lenders treat you more like an employee and may discount your dividends or leave them out. Others will use your full salary and dividends however small the stake. If you hold a minority share, read our piece on minority shareholdings.

Income across more than one company

If you own shares in several companies, a lender may only consider some of them, or may not follow how they connect. Some lenders can look at your share of profit across each company. That means two years' accounts for every company you hold shares in, and a clear explanation of the structure.

A strong latest year

Two year averaging penalises a growing business. Some lenders will use your latest year on its own where profit has gone up and the trend supports it. Others will consider one year's trading for a newer company.

Older or dormant companies

An old company that appears on a search can stall an underwriter if nobody has explained it. We ask about these at the start, so they are dealt with in the application rather than as a query halfway through.

Keeping your tax planning intact

We are not tax advisers and we won't suggest you change how you are paid. Decisions about salary, dividends and retained profit are for you and your accountant. Our job is to find lenders who can assess the income you have, structured the way you want it. In some cases a larger mortgage may be available without changing anything, simply because the case is presented on the full picture. All lending is subject to underwriting and valuation.

What you'll usually need

• Two years' accounts for each company you own shares in, ideally signed by your accountant
• SA302s and tax year overviews for the same years
• Recent business and personal bank statements
• Details of your shareholding and how long you have held it
• Your accountant's contact details, as some lenders ask for an accountant's reference
• Details of any other companies you are, or have been, a director of

How we work with company directors

1. A proper conversation. We spend 30 to 45 minutes on how your companies are set up, how you pay yourself and what you want to buy or remortgage.
2. Your documents, once. You upload everything through our secure portal against a checklist built for your income.
3. Reading the accounts. We work out how each lender would assess you and shortlist those that fit, with the options explained in writing.
4. Decision in principle. We obtain an agreement in principle so you can move with confidence, subject to underwriting and valuation.
5. Packaging the case. We present your income to the underwriter with the structure explained up front, and handle their questions for you.
6. Offer to completion. We keep the lender and your solicitor moving, and review your protection along the way.

The first consultation is free. Whether you are buying, moving or looking at a remortgage, send us a few details through our contact form and we will aim to come back to you within the hour during office hours.