Directors of Limited Companies Can Sometimes Struggle To Get A Mortgage – This Is How To Get Yourself A Much Bigger Mortgage
The Problem With Company Directors
The main problem with company directors, when it comes to getting a mortgage, is that most lenders, providing you own at least 20% or more of the company, will immediately treat you as self-employed.
This is not good news
The reason for this is that the litmus test for how much you can borrow is going to how much net profits your company has and this is where most people start to become unstuck. The whole point of a Ltd company is to get his figure as low as possible, that’s why we have accountants dammit! So we then end up with the classic problem of your clever accountancy backfiring on you when you try to obtain a mortgage big enough for your requirements.
Not only does the mortgage lender start looking at your net profits rather than your actual turnover but they won’t even accept your last year’s accounts and insist on averaging out your last two or even three years net profits – not good if you have only recently got off the ground and the previous set of accounts don’t make for good reading.
Mortgages For A One Person Ltd Company
If you are effectively the company and are just using the Ltd company as a tax vehicle then the solution is pretty straightforward – you simply need to use a mortgage provider that will work off your daily or hourly contractual rate and will effectively treat you not as a self-employed individual but as somebody who is employed but on a short term contract. There are a handful of lenders that will be willing to base your mortgage lending on your contractual rate rather than your net profits and one of them is Halifax
John Smith is a Management Consultant and runs his own Ltd Company for which he is the sole Director and he works for companies on six to twelve month long contracts before moving on to a new contract; his daily contractual rate is £500. Halifax would be willing to take, as his mortgageable income, his daily rate of £500 over a period of 48 weeks giving him an annual income, for mortgage purposes, of £120,000, almost three times the amount of his net profits which he sensibly keeps below the high rate tax threshold.
Mortgages For Contractors With More Than One Source Of Income
The above example assumes that you only have one source of income but what if you have more than one company that you are contracted to? Well, Halifax will probably not be willing to help but Clydesdale Bank quite possibly will. Although generally slower at turning mortgages around and generally less user-friendly and slower at producing a mortgage offer, Clydesdale will allow you to be in bed with more than one company whereas Halifax want you to be monogamous. Clydesdale can also give you a much larger mortgage if you have a deposit of only 10%; up to £750,000 assuming you have enough income compared to a maximum mortgage of just over £400,000 with Halifax.
Contractual Income less than £2500 per week?
The above scenarios are typically only allowable if you can demonstrate a contractual income of at least £2500 per week (£500 per day or £68 per hour assuming a 38 hour week) If your contractual income is less than this, then there is one more company we can look at and this is Metro Bank. Metro are the new kid on the mortgage block and they are particularly willing to help you get a mortgage even if your contractual rate is not quite so high.
Be careful if…
- Your contract has less than 1 month to run
- You have less than 2 year’s experience of running your Ltd company
- You are paid via an Umbrella company
If any of the above applies then be sure to speak with an independent mortgage adviser as they may affect your ability to obtain a mortgage
Obtaining A Mortgage For Directors Of A Ltd Company With Multiple Employees
If you are the Director of a Ltd company which has many staff members and multiple revenue streams than the above approach will not work but there are still ways that you can increase your mortgage amount depending on your circumstances.
Rapidly Growing company
If you are the Director of a rapidly growing company then the chances are that your most recent set of accounts are going to be the ones that you want to use for your mortgage. The problem is that most lenders will insist on using an average of your last two or even three years accounts which can bring your borrowing capacity right down.
One solution is to use The Coventry Building Society as they will calculate your Mortgage borrowing based on your most recent set of accounts which can be particularly useful if you are a fast growing company as the most recent year will probably show the most income. In addition to the pre-tax profits, Coventry will also allow you to use any salary that you paid yourself for the most recent tax year.
Obtaining a Mortgage if You Have Retained Profits In your Ltd Company
Another problem faced by Ltd Company Directors when trying to obtain a mortgage is if your company has retained profits. Most lenders will simply not use retained profits when calculating how much mortgage they will give you as they will only base mortgage affordability on the amount of salary or dividends that you are paid but one mortgage company that may allow you to use retained earnings is Barclays and this may result in a significantly larger mortgage if you have retained profits in your company rather than paying them out in salary and dividends.
The information provided is general information based on UK mortgage lending policy at the time of writing. It does not take into account individual circumstances or changes in lending policy. In order to obtain mortgage advice based on current lending policies and your specific needs contact us or Call Now On 08000-146-701 For A Free Initial Phone Consultation and speak to one of our regulated mortgage advisers.