Company heads often struggle with getting a mortgage primarily because they fit the definition of self-employment as dictated by UK law and in terms of mortgage lenders criteria.
Because of this, lenders consider company or business directors to be high-risk borrowers, which complicates the process of getting a mortgage.
This creates a situation where company employees may face very little resistance while applying for a mortgage, but their boss has to face intense scrutiny instead.
The complications don’t end there, as company directors are reliant on the success of the company for a stable income. Should the company not turn over profits at a stable rate, proving that the director has a stable income becomes difficult.
So, let’s explore how a company head may be able to get a mortgage and the extra steps they may have to take for the same.
It is an important factor to note that the level of shareholding within the company affects whether the director is typically assessed as employed or self-employed.
For most lenders if an individual has a shareholding of less than 25% they will be classed as employed by mortgage lenders.
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Mortgages For Directors
The chances of getting a mortgage as a company director may hinge upon the number of years you have been in the position. This is important because the time period you have spent as the director is considered to be the amount of time you have been self-employed.
And the more time you have spent in the position, the more extensive your tax records and LTD company accounts become.
Lenders require you to present tax returns for the previous two financial years usually to calculate the directors salary and dividends. In the case of LTD company directors, often lenders may look at the LTD company accounts and assess income via the net profit.
This serves as the basis upon which they assess affordability. So, the longer you have been in the trade, the better your chances of a mortgage become.
If you’ve spent less than a year in the position, you may struggle to find a lender. While it is rarely possible through certain means, such as written contracts that provide a roadmap for future income, it is unlikely under ordinary circumstances.
After being the director of the company for 1-2 years, your chances of getting a mortgage successfully improve. You will have access to tax returns and LTD company accounts for at least one year.
In such a situation, certain lenders may consider having you on standby until you have filed tax returns for the second year or allow 1 year. Do note that some lenders will lend to you if you meet the eligibility and have only a year’s set of income figures.
And if you have been active as the company head for more than two years, your chances of getting a mortgage become even more increased. You can follow the standard mortgage application process and collect all the necessary documentation for this.
Eligibility Criteria For Mortgages For Directors
In addition to the duration of your tenure as the company director, lenders require you to fit certain eligibility criteria. Fulfilling these will improve your chances of getting a mortgage considerably, as they give the lender insight into your financial status and history.
Here are the three eligibility criteria that you must meet to increase the likelihood of getting your desired mortgage deal.
1. Deposit Amount
For self-employed individuals, the amount of money you need to put down as a deposit can vary heavily, with the average deposit value being 20%. This can be as low as 5% for those in the trade for more than two years.
Or it can be as high as 40% for those who haven’t spent much time as the company head. Different deposit amounts will vary based on lender and there available mortgage products
In any case, the deposit amount is usually the same for directors as it is for any self-employed individual. So, it’s important to remember that the more money you put down as a deposit, the lower your interest rate usually become.
With a higher deposit the mortgage can be much more manageable in the long run. As such, paying a higher deposit becomes a preferable decision in many cases.
If you are having issues making the decision, it might be a good idea to consult a mortgage advisor for the same to ascertain accurate mortgage repayments when putting down different levels of deposit.
2. Credit History
Your credit score matters a lot when applying for a mortgage as a company director. Lenders tend to keep a keen eye on the financial history of an applicant to ensure that the borrower is able to pay the loan back.
As such, it’s important to ensure that your financial track record remains as spotless as possible, with all of your previous dues cleared.
But if you do have bad credit, there are still ways you may be able to secure a mortgage. Note that the deal may not be ideal, as lenders tend to demand a higher deposit or higher interest rates from high-risk applicants.
Recency and the severity of the bad credit issues will play a major role in ascertaining whether or not you can receive a mortgage. In such cases, the best course of action is to work with a mortgage broker who may be able to find lenders for you.
3. Construction Type
Company directors may be able to find a mortgage for a standard construction home more easily than non-standard property mortgages. Since non-standard properties are considered high-risk, the number of lenders willing to lend reduces drastically.
Moreover, the number of lenders willing to lend on non-standard properties is exceedingly low, so you won’t find many non-standard options available. As such, it’s important to pick and choose your construction type carefully before you search for potential homes on the market.
Documents Required For Mortgages As A Director
After choosing a mortgage, you must produce a few documents to the lender in order to prove your income.
These include the SA302 forms, complete LTD company accounts summary usually from a certified accountant, and bank statements that date back up to three months (potentially more in certain cases).
The SA302 forms are an online resource that evidence the level of salary and dividends declared to HMRC. Typically, lenders require three of these forms, but this can vary from one lender to the next.
Whereas the SA302 forms are a self-assessment resource, LTD company accounts are usually completed by a suitably qualified accountant. Doing so lends legitimacy to your records while letting the lender know that your finances are in order.
Getting A Mortgage As A Company Director With Credit Issues
As mentioned earlier, the possibility of getting a mortgage with credit issues depends on both their recency and the severity. This can be rather difficult because of the low number of lenders willing to lend a mortgage in such cases.
That said, you can still manage to get a mortgage with the below credit issues.
1. CCJ
A County Court Judgment (CCJ) is a penalty applied when someone files a case against you for neglecting payments or adequate responses.
Recent CCJs and a high payable amount reduce your chances the most and vice versa with some lenders accepting smaller credit blips.
2. Late Payments
Late payments affect your credit score negatively but are considered to be low risk by some lenders.
3. IVA
Having an Individual Voluntary Arrangement (IVA) impacts your credit score quite heavily and drastically reduces your chances of a mortgage.
You must have settled the IVA around six years usually before applying for a mortgage to have a decent chance at securing one. Lenders will also heavily look into if there has been any adverse credit after.
FAQ
1. How do I get a buy-to-let mortgage as a company director?
Getting a buy-to-let mortgage as a company director is a simple matter of meeting the eligibility criteria and proving affordability.
It’s usually best to hire a mortgage advisor for such cases. Rather than personal affordability, more of the affordability will be assessed by the rental income of the subject property.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
I am CeMAP & CERER qualified mortgage adviser and have helped a number of clients realise their dreams when they thought it would not be possible. I’m skilled at getting mortgages sorted for people with a history of missed payments, CCJs, defaults, debt management programmes, IVAs and bankruptcies.
I am CeMAP (Certificate in Mortgage Advice and Practice) qualified mortgage adviser with a strong background in Finance. I specialise in providing expert advice on a range of mortgage products, including first-time buyers, remortgages, buy-to-let mortgages and bad credit mortgages.
