Getting a mortgage as a company director
What Are the Eligibility Criteria?
To be eligible for a mortgage as a director, you must have at least 1 year of trading history as a director of a limited company or as a freelancer. You'll also need to provide evidence of your income, which can be challenging for those who have recently started their own business. Lenders will look at your credit score, trading history and proof of income to determine whether you're eligible for a mortgage.
How Much Do I Need for a Deposit?
The amount you'll need for a deposit will depend on the lender and the type of mortgage you're applying for. Generally, the deposit required for a mortgage for a director is similar to that of a traditional mortgage, which is typically around 5% – 20% of the property's value.
How Does a Lender Assess My Income?
Lenders will assess your income based on several factors, including your trading history, net profits and any additional sources of income. They’ll typically use your average net profit over the past 2 or 3 years to determine your affordability for a mortgage. Lenders may also take into account any other sources of income, such as rental income, dividends, or bonuses.
How Do I Prove My Income?
To prove your income, you'll need to provide your lender with a range of documents, including your company accounts, tax returns and bank statements. Some lenders may also require additional information, such as contracts and invoices, to verify your income.
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How Does Trading History Affect Mortgage Availability?
Your trading history can have a significant impact on your ability to secure a mortgage as a director. Lenders typically prefer to lend to directors with a stable trading history, as it provides them with a level of security that the income is likely to continue in the future.
0 – 1 Years
If you have been trading for less than a year, it can be challenging to secure a mortgage. Lenders will typically require a more substantial deposit and may ask for additional proof of income.
1 – 2 Years
If you've been trading for 1 - 2 years, you may be able to secure a mortgage, but you may still need to provide additional documentation to prove your income and affordability.
2 – 3 Years
If you've been trading for 2 - 3 years, you're more likely to be able to secure a mortgage and the deposit required may be lower. However, the interest rates may be slightly higher compared to traditional mortgages due to the higher perceived risk.
How Can John Charcol Help with a Director Mortgage?
We’ll Do All the Hard Work
We know your time is important when you’re a company director. That’s why we handle everything from application to conveyancing.
We Produce Great Results
Our award-winning brokers have received more than 1800 5* reviews. You can trust us to find great company director mortgages.
Advice Tailored to Your Situation
No matter how complex your circumstances, we can help you find a deal that meets your needs. Plus, we’ll work around your busy schedule.
Can I Get a Mortgage with Less than a Year’s Trading History?
It can be challenging to secure a mortgage with less than a year's trading history as a director. However, there are some specialist lenders who may consider lending to those who have been trading for less than a year. The deposit required is likely to be greater and the interest rates may be higher than traditional mortgages.
How Much Will I Be Able to Borrow?
It’s natural to question how much you can borrow, but there’s no set-in-stone answer as it greatly varies based on your net profit and how much you pay yourself.
Typically, if you’re applying for a director mortgage and are purchasing a residential property alone, you’ll be able to borrow between 4 and 4.5x your income. For example, if your net profit or income was £40,000 in the most recent tax year and the previous tax year, you could borrow up to £180,000. Likewise, if your net profit was £50,000 in the most recent tax year and £40,000 the year before, you could apply for a mortgage worth £202,500.
If you’re looking to purchase with a partner, you could be able to borrow a more substantial mortgage via a joint mortgage, which we share more about below. It’s also important to note that the bank you apply for a mortgage with and the size of your deposit will influence how much you can potentially borrow.
By inputting your annual director salary, any dividends taken over the last few years and your net profit, you’ll obtain a better idea of how much you can afford to spend on a property, which will, of course, inform your search.
Expert Tip - Nick Mendes, John Charcol. May 2023
Loans for company directors are slightly different, as there are specific factors to consider. Some directors will take a salary and some will take dividends and many don't want to take money out of the company because they don't need to and from a tax perspective, it doesn't make sense. With a specialist broker, you can look at the structure of the company, the turnover and study the accounts to evaluate affordability.
Can a Limited Company Director Use a Remortgage to Raise Capital for Their Business?
Yes, a limited company director can use a remortgage to raise capital for their business. A remortgage in this scenario involves taking out a new mortgage on a property you already own and using the funds to pay off the existing mortgage and at the same time releasing equity held in the property - you can then put the cash raised from the equity for your business.
Another option for limited company directors looking to raise capital for their businesses is to take out a commercial mortgage. Commercial mortgages are specifically designed for businesses and can provide funding for a range of purposes, including buying property, expanding your business, or purchasing equipment. However, commercial mortgages often have strict eligibility criteria and high interest rates, so it's essential to weigh up the costs and discuss your options with a mortgage broker.
How Much Can I Borrow on a Remortgage?
The amount you can borrow on a remortgage will depend on several factors, such as the value of the property, the amount of equity you have in the property and your income. The maximum LTV (loan-to-value) on a remortgage where you want to raise capital for business purposes is typically around 85%, which means that you can borrow up to 85% of the value of your property. However, this can vary depending on the lender and your individual circumstances.
When using a remortgage to raise capital for your business, it's essential to consider the risks involved. You'll be increasing your debt levels and taking on bigger monthly payments. Speak to a mortgage broker about your options and whether the potential benefits of raising capital for your business outweigh the costs and risks involved.
Applying for Mortgages for Company Directors
Now that you know more about what eligibility criteria you’ll need to meet, how a lender will assess you and how trading history can affect mortgages for company directors, it makes sense that you’ll now wonder how to apply for a director mortgage.
Like other mortgages, applying for a director mortgage involves finding a suitable lender. Across the UK, several banks and building societies offer mortgages for limited company directors.
We share a few of these below:
There are many other lenders not on the high street who may be able to offer you a better deal more suited to your circumstances, so it’s important to consider all your options before submitting an application. You’ll likely need to use one of these lenders not on the high street if you want to raise capital for your business. The best way to do this is to speak to a mortgage broker like John Charcol. We have helped many company directors secure mortgages. We understand complex income structures and know which lenders to approach for all kinds of situations.
Guidance for Company Director Mortgages
As mortgages for limited company directors work somewhat differently from other types of mortgages, working with a specialist mortgage broker such as John Charcol is a way to ensure you get the support you need in finding a suitable lender.
We offer tailored advice based on your personal requirements and situation. We understand complex income structures, which lenders can cater to your circumstances, where to go for the best deals and how to meet your needs. We have access to mortgage products from across the market and will work around your busy schedule to deliver a service that accommodates you while keeping you informed and leaving no questions unanswered.
Can I Apply for a Director Mortgage with a Partner or Spouse?
If you’re hoping to purchase a home with a partner or spouse, the good news is that you can apply for a joint mortgage even if you’re self-employed or the director of the company.
When you and your partner apply for a joint mortgage, you’ll both need to provide evidence of your income. As a company director or self-employed individual, this will include the evidence shared above, such as your SA302 calculation. Meanwhile, the evidence your partner must provide will depend on their employment type. If they’re employed full-time by an organisation, proof of income in the form of payslips for the last 3 months will support the application.
Rather than relying solely on one income to support the mortgage application, using income from multiple parties essentially means you’ll be able to borrow more money.
To learn more about how much you could borrow with a joint mortgage, use our self-employed mortgage calculator and add yourself or your spouse as a second applicant. For a more accurate estimate, contact us directly today.
Get a Mortgage as a Limited Company Director
Ready to take the next step in your mortgage journey? Call us on 0330 433 2927 and have a no obligation call with one of our expert advisers about your options. No matter how complex your circumstances, we can help.
Mortgages for Directors FAQs
How Can I Get a Mortgage if My Accountant Is Working to Minimise Profit in My Business for Tax Purposes?
Most directors face this problem. At John Charcol, we know how to make the best case for your personal finance and which lenders are happy to look beyond the headline figures to understand what you can really afford.
If the High Street Lenders Tell Me I Can’t Get the Multiple on My Salary, Are There Other Places I Can Go?
Yes. We deal with regional building societies, private banks and other niche lenders who will look at each client on an individual basis. The range of income multiples could be as high as 5 times.
Can You Help Me to Arrange a Mortgage Around My Intense Work Schedule?
At John Charcol we’re used to working with busy individuals who are under real time pressure. That’s why we can come to you and fit in with your schedule.
Is There a Fast-Track Service so that I Can Secure the Property I Have My Eye on Now?
We understand that you have business to run and it's our job to make the process as easy, straightforward and timely as possible. With that in mind, we're happy to liaise with your accountant when you're not available and work to your schedule. Your adviser and client relationship manager will also be on-hand to provide you with updates and manage your application with the lender.
Can I Speak to Someone with the Authority to Make Decisions Based on My Real Circumstances Rather than Computer-Set Limitations?
Yes. At John Charcol our consultants are all experienced mortgage advisers. We often arrange directors’ mortgages through reputable private banks and investment houses who have much more flexibility on who they lend to and how much they will lend.