When applying for a mortgage, your choice of career should never stand in the way of owning a property. If your field of work is a director of a limited company, there are additional bridges to cross toward owning a house, but mortgage advisers who are clued up in this area will not have a problem in finding you a suitable mortgage deal.
However, depending on why you want to own a property; either to rent, live in, or to sell it on for a profit, the mortgage will need to be looked at by your accountant and the subsequent lender before it’s approved.
Directors are usually paid through dividends and compensation depending on the results of the business they are involved in. Most lenders operate on how much income you make each month, and what your outgoings are in those times. But as a director there’s usually a lower salary for tax reasons, but the dividends cover the additional cash flow for this. Some lenders may even consider retained profits as income; these are funds that remain in the business.
A director is also measured by being self-employed. This goes back to the main point of making sure that there’s at least two tax returns already filed that prove there are substantial steady income streams that can take a mortgage into account.
A lender must abide by the ‘UK Finance Mortgage Lenders’ Handbook’. If you have an accountant, the process of obtaining a mortgage can be a much simpler affair as they will also be aware of this handbook. But as a prerequisite, most lenders will usually require the following:
An SA302 form is a brief summary of what you have declared to HMRC. This can give a broker and a lender a clearer idea of what you have earned in the last few years.
But the process for a company director can be confusing; minimum deposit is likely to be 10%, and lenders will generally want 2 years tax calculations and overviews, however, some will accept 1 years and a projection.
If a director decides to own a house through themselves, there are specialist lenders who will be able to provide a mortgage. The requirements are the same as anyone else in applying for one, so it helps to speak to someone who is more adept in helping directors and other self-employed individuals when approving a mortgage.
Most lenders will consider directors salary and dividends, whereas some will consider directors salary and net profit after tax.
If an accountant holds a chartered status, many lenders will also accept the accounts they provide as evidence of income. Eventually, the lender will have enough information to generate an LTV (Loan to Value), which is what they will be prepared to offer the director that’s equal to the value of the property they are buying or remortgaging.
There’s plenty of routes for a director to attain a mortgage, but it’s the clarity that’s needed. Talking to a Rippled mortgage adviser can help expand on the points in this blog, and find a route that works best for you.
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