Mortgages for company directors are confusing, to say the least. Some lenders accept one year of accounts and a 5% deposit, others insist on 3 years and a huge 25% deposit. So, how do you find out which ones will give you the best deal?
Limited company directors have a tax-efficient business model. However, the tax benefits of taking a small salary, larger dividends, and leaving profit in the business bank account make it tricky to convince mortgage lenders you’re a reliable borrower.
Changes like switching your salary and dividends levels shortly before your mortgage application won’t help, either. It’s all based on closed business year accounts – so what you do right now won’t affect an imminent mortgage application – although some lenders may ask about your current year to see sustainability going forward.
However, the good news is that there are mortgage providers out there who understand company directors’ income and are offering mortgages for company directors. You just need to know where to look – and that’s where our expert, independent mortgage brokers can help you.
We know which lenders take business profit into account – even if you’re not withdrawing it from the company’s bank account. They recognise that it’s your money, which you could access if you wanted to.
That means we can use your profit AND salary to work out your mortgage affordability levels. Then, we’ll look at the lenders who offer special mortgage rates for company directors – including deals we negotiate on your behalf that you won’t find if you go direct to the provider yourself.
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As a limited company director, you are in a good position to get a mortgage as you have control over your expenses and, ultimately, your company accounts.
Several lenders recognise that even if you don’t take out all your profit as dividends, it is still your money and you could potentially take it out later. They factor in this extra option when they stress test your affordability which works in your favour. This means that if you want to keep your salary and dividends low for tax purposes, we could still use the profit and your salary to secure the mortgage you need.
In case you had a better year last year compared to the previous ones, there is good news. Some lenders average only the last 2 years or use the latest year’s figures.
With so many options at your disposal, we can find the appropriate lenders who offer mortgages for company directors based on your unique limited company accounts history and your circumstances.
The amount of paperwork you receive from the accountant can sometimes be confusing. You may have abbreviated accounts, trial balance sheet, unaudited financial statements, corporation tax computation, company tax return, personal tax return and personal tax computation among others.
So, what does a lender need for a mortgage application?
As a generic answer, lenders normally ask for the full, finalised and signed accounts (unaudited financial statements), which historically showed all the necessary figures. However, following changes in the accounting requirements, the new format does not normally show dividend figures. Therefore, lenders are likely to ask for a letter from your accountant to confirm the dividends in addition to your accounts.
Some lenders may also ask you for other documents, while others won’t bother you at all, as they just send a form to the accountant to complete. Whatever the case, we are here to make your mortgage journey smooth and hassle-free. We can also work directly with your accountant to gather all the necessary paperwork.
When you find a limited company director mortgage calculator online, what income figure do you put in? Latest year salary and dividends? Or the average of the last 3 years? Or your profit and salary figures for the last 2 years? It is confusing, isn’t it? Well, the answer is – it depends.
Every lender is different in the way they assess your income and mortgage affordability. Unless you have access to the lender’s own mortgage calculator and specific lending criteria, you can only get indicative results from online mortgage calculators.
As an independent whole of market mortgage broker, we have access to all mortgage lenders’ calculators and lending criteria. We can work out exactly how much you can borrow and the exact deal’s rate and terms for each lender. Think of us as your personal shopper who has access to all the products out there and can get one tailor-made to your requirements. We compare the market on your behalf to get a mortgage as a company director quicker, freeing your time to spend on finding your perfect property!
If you have money left in your business and you wish to invest it in a property, there are 3 different ways you could go about it:
Buy a property for your business
For example, you can buy an office or a building with a shop on the ground floor and a residential flat above that you can rent out. This normally requires a commercial or semi-commercial mortgage.
Buy a property through your existing limited company
If you didn’t set up your current company for the property rental business, then it is referred to as a trading company. You can use your trading company to invest in buying, selling and renting properties. Though most investors prefer to set up a Special Purpose Vehicle (SPV) company for this purpose, as it gives them access to more lenders and normally better interest rates.
Buy a property through a new limited company
A Special Purpose Vehicle (SPV) company is a company you specifically set up to deal with buying, letting or selling residential properties.
We can help you with buying a buy to let property through a limited company, regardless of whether it is an SPV or a trading company.
Additionally, we have partnered with a few specialist brokers for commercial mortgages. In case you are planning to buy a commercial unit or a property that requires a commercial mortgage, we are happy to assess your options first and then make the introduction as appropriate.
Let’s start with the good news.
When applying for a mortgage as a limited company director for your own home, you need a minimum 1-year trading history and your income will influence how much you can borrow. None of this applies when buying an investment property through a limited company if this company is an SPV.
Lenders accept SPVs even if they’ve just been set up with no trading or accounting history. Normally, lenders accept up to 4 directors and not everyone needs to be an experienced landlord or even a homeowner.
However, here comes why you need tax and mortgage advice.
Most lenders will insist on the directors signing a personal guarantee and may also apply fixed and floating charges or potentially take a debenture over the company’s assets. You also have to consider stamp duty and capital gains tax implications as well as accounting and taxation rules for the company.
From a buy to let mortgage point of view, not every lender accepts a buy to let purchase or remortgage via a limited company. Out of those who do, some will not accept trading companies but will insist on an SPV and stipulate which SIC codes they accept. SIC is short for standard industrial classification of economic activities, which is used by Companies House to describe your company’s nature of business.
Dependent on the SIC code you choose for your company and other mortgage lending criteria, we can certainly find suitable lenders for you.
Apart from buying a property through a limited company, you could also consider transferring property to a limited company. This may help you reduce your tax liability or make it easier to invest your profit in new properties.
Be aware that this transaction is a property sale, so the buyer (the limited company) may have to pay stamp duty land tax. Your accountant or tax advisor will be able to advise you regarding the stamp duty tax liability.
On the positive side, many lenders accept the equity in the property as a “gift”. This means that the limited company wouldn’t necessarily have to put down any cash as a deposit for this purchase.
You could also transfer the property to a limited company when moving home and renting out your old home. Not every lender allows this transfer, but we have access to all those who do and we can help you arrange this type of mortgage as well.
Buying a buy to let property through a limited company has its pros and cons compared to buying in your own name.
Buying under a limited company can be more tax-efficient, you can more easily partner with others to buy an investment property and you may even find it easier to re-invest the profit in other properties. In other words, it is like running a property business.
However, you have to be prepared for higher costs versus a traditional buy to let mortgage. Although an increasing number of lenders are prepared to offer a mortgage for a limited company, the interest rates and associated fees are normally higher compared to buying in your name.
Ultimately, the decision lies with you based on your plans and preferences. A tax advisor will help you understand the tax implications, while a mortgage broker will help finance the transaction. We are here to make sure that you get the best mortgage deal possible whether you buy under your name or a limited company.
The main deciding factor is whether you have
- taken any loans and
- repaid the loan in full before applying for a mortgage.
If you did not take a loan or have already repaid it, then lenders would treat the mortgage as normal.
However, if a loan is not repaid before applying for the mortgage, then some lenders will not lend at all, others will deduct the monthly payment from your company’s profit, while others will just ignore it.
We will assess your mortgage options and maximum borrowing based on each lender’s criteria. So the loans won’t cause an issue when we get to the application stage.
If you buy a house, then building insurance will be mandatory to ensure that in case the structure is damaged (e.g. by fire, flood or movement), the insurance will cover at least the mortgage amount.
Nothing else is compulsory, but of course, it makes sense to cover costly unexpected events.
Contents insurance can pay for replacing your personal belongings if someone burgles your home, there is fire, you accidentally drop your new flat screen TV…and the list goes on.
If you’re planning to rent out your property then you should consider getting landlord insurance. Landlord insurance protects you as a landlord from risks associated with your rental property. It usually includes buildings and contents insurance, but can also include rental-property specific covers such as protection against loss of rent, and tenant default. It can also cover legal fees and compensation for damage or injury to the tenant due to the property.
Life insurance is a one-off payment if you were to die during the mortgage term, so the insurance can settle your mortgage. This would allow your family to stay in the property without worrying about mortgage payments at an already stressful time.
Critical illness cover
Critical illness cover would give you a lump-sum if you had a serious illness like cancer, heart attack or stroke as well as dozens of other conditions. This payment may or may not settle the mortgage, but it can help pay for treatment, let you take time off work while recovering or alter your home, if necessary.
Because you are self-employed, you wouldn’t have insurance through work, so it makes sense to look at your options. With a classic example, you are the hen laying the golden eggs, so if you fall ill, there may be no one to provide for you and your family.
If your company only generates income when you work, then perhaps income protection is the most important one for you. It is designed to give you a monthly income for some time in case you can’t work due to an accident or illness for a long time. This covers mental health issues as well.
Of course, all the insurances come with terms and conditions, optional features and your medical history can influence your options.
To find the right insurance cover that fits within your budget, speak to our team today. We can compare the whole market, find the most suitable cover and apply on your behalf free of charge.
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