Mortgages for Limited Company Directors

Can Limited Company Directors Get a Mortgage?

Yes. Limited company directors can access a wide range of residential mortgages, but lenders do not all calculate director income in the same way.

Many lenders use the salary and dividends you have taken from the company. Others may consider your share of company profit, including profit retained within the business.

The appropriate assessment will depend on your shareholding, trading history, company performance and how you draw income from the business.

If you receive earnings from several sources alongside company income, read our guide to complex income mortgages.

How Do Mortgage Lenders Assess Company Director Income?

Lenders generally use one of two approaches when assessing income from a limited company.

Salary and Dividends

Many lenders calculate affordability using the salary and dividends you have withdrawn personally.

They may use:

• The latest year’s income
• An average taken from recent years
• The lower figure where income has declined

This approach can work well for directors who regularly withdraw a representative share of the company’s profit.

However, it may understate affordability where a director takes a relatively low salary and leaves profit inside the business.

Salary and Share of Company Profit

Some lenders can assess salary alongside the director’s share of company profit instead of relying solely on dividends taken.

This may allow profit retained in the company to contribute to the affordability calculation, provided the lender considers the business financially sustainable.

The precise calculation differs between lenders. A lender may examine profit before or after particular deductions and apply the applicant’s percentage shareholding to the relevant figure.

What Are Retained Profits?

Retained profits are profits left within a company rather than distributed to shareholders as dividends.

Directors might retain profit to support cash flow, fund future investment or provide a financial reserve. This can result in personal taxable income appearing lower than the profitability of the underlying business.

Not every lender will include retained profits. Those that do will normally examine the company accounts and the sustainability of the business rather than treating retained cash as automatically available personal income.

Shareholding

Your percentage shareholding can affect how a lender classifies and assesses you. Some lenders treat applicants with smaller shareholdings as employed, while directors with a larger interest in the business may be assessed under self-employed or company-director criteria.

The relevant shareholding threshold differs between lenders, so it should be checked before an application is made.

Company Performance

Lenders may review:

• Turnover and profitability
• Whether profit is increasing, stable or declining
• Cash held within the business
• Existing company liabilities
• Length of trading history
• The latest completed financial year
• Whether recent performance remains consistent with the accounts

Strong turnover alone does not establish personal affordability. The lender will focus on the income or profit figure permitted under its criteria and whether it appears sustainable.

How Many Years of Company Accounts Do I Need?

Many lenders prefer to see at least two years of completed company accounts, but this is not a universal requirement.

Some lenders may consider an application with one year of accounts, particularly where the business is performing well and the director has relevant previous experience. Lender choice is normally more limited in these circumstances.

Where the latest trading year has finished but the accounts have not yet been finalised, a lender may request draft accounts, management figures or confirmation from the company’s accountant.

Newly incorporated businesses can be more difficult to assess because there is less evidence of sustainable performance. However, previous experience in the same industry may be relevant to certain lenders.

What If Company Profits Have Changed?

Increasing profits can strengthen an application, but lenders do not all use the latest year automatically. Some will still calculate an average, particularly where the increase is substantial or there is limited evidence that it will continue.

Where profit or dividend income has fallen, a lender may:

• Use the latest lower figure
• Request an explanation for the reduction
• Review more recent management information
• Examine whether the change is temporary or ongoing
• Decline to use an historic average that no longer appears sustainable

Recent figures should be reviewed before selecting a lender, especially where current performance differs significantly from the latest completed accounts.

What Documents Do Company Directors Need for a Mortgage?

The documents required will depend on the lender and the income calculation being used. They may include:

• Final company accounts
• SA302 tax calculations
• Tax year overviews
• Dividend vouchers
• Personal bank statements
• Business bank statements
• Proof of shareholding
• An accountant’s reference
• Draft accounts or management figures
• Identification and proof of address

A lender using salary and dividends may focus on personal tax documents. A lender assessing company profit is more likely to examine the full accounts and wider financial position of the business.

Preparing for a Company Director Mortgage Application

Before applying, make sure your company accounts, tax calculations and dividend records are complete and consistent.

It may also help to:

• Identify your current shareholding
• Check that the latest accounts reflect the present trading position
• Prepare an explanation for any significant change in turnover or profit
• Keep personal and business transactions clearly identifiable
• Avoid making a mortgage application before the relevant income documents have been reviewed

Do not increase salary or dividends solely to support a mortgage application without first discussing the financial and tax implications with your accountant.