We often get asked the question ‘can a company director still get a mortgage’? Well, the good news is, yes, you can. However, you may need to do a few things a little differently.
Why is getting a mortgage so different for a company director?
Well, in some fundamental ways, it isn’t that different. The same basic rules apply when it comes to meeting the lender’s needs because the bottom-line questions are always about affordability and how much of a risk you are. In other ways, it is a little bit more difficult because you may need to provide more evidence to reassure your potential lender. If you can meet the criteria though there is no reason, why you shouldn’t get a mortgage whether that is a standard one or a buy-to-let.
The reasoning behind the reluctance to lend is that being a director is considered inherently riskier than being a regular employee. If you are reading this, then the chances are that you are a director. For most, this means you will have had a period in your directorship where there were no dividends, or you had to take a reduced salary for a while. I suppose when you look at it that way you can see why the lenders see you as a slightly riskier proposition.
How do you convince a mortgage lender?
It will depend on the lender and, as with any mortgage application, things like an adverse credit rating and CCJs could be a problem, but as a rule, they will all want to see the usual documentation and some additional information:
Required documents include
- Proof of identity
- Proof of address and name confirmation
- Proof of income in the form of 3 payslips, your bank accounts and so on
- Your expenditure
- Proof of your deposit
On top of the above Directors will usually need
- Proof of your salary as a clear indication of how it was broken down in terms of dividends and your share of net profit after corporation taxes
- Business statements for 3 months, sometimes up to 6 months
- Your accounts often for 3 years
- Personal accounts
- Your end-of-year tax calculations (usually your SA302)
You can see from the list above that the lender is looking for proof of income and stable finances beyond the usual requirements for an employee.
How much can I borrow?
Again, this will depend on the lender and the best available deal. The majority of mortgages will be in the 85 – 90% LTV band but we have seen them go up to 95% LTV if you meet the right criteria.
How much you can borrow in relation to your income will depend on how the lender looks at your overall finances. It tends to vary depending on the criteria being applied but some lenders will look at the last year of trade. If you are a fairly new company then this can be a major advantage – also, in our experience, directors often tend to be more inclined to think about a new house after a good year! In other circumstances, lenders will look at an average of 3 years of trading. If you had a bad year in the mix this could be a much better option because the average could raise a bad year into something much more attractive over a period.
Another very important factor will be whether the lender will take your profit share into account for the purposes of deciding your mortgage offer. Some do and some don’t, but this can often lead to a very different mortgage deal.
All these factors will affect the likelihood of your mortgage being granted, how much they will offer and what the interest rate and LTV are likely to be. At the end of the day, it’s really important to go to an advisor who knows the market and has access to a wide range of lenders and options, so you get the best options.
Call us if you are thinking of applying for a mortgage and you are a director. It’s not as simple as other applications however, there are a lot of choices out there, so you need someone who knows the field to guide you through it.