Limited Company Directors

Are there any specific mortgage products designed for limited company directors?

Yes, there are, and it’s no surprise. I was looking at the numbers on this, and around 7 million people are registered as limited company directors in the UK with Companies House.

It’s a massive market, so lenders are going to have products for it. One thing to say, though, is that it isn’t always necessary. The Big Six lenders in the UK are names you’ll know, and they have sub-brands as well, which can catch people out. In the residential mortgage space, these big six lenders arrange 85% of all lending.

These all have their own limited company director criteria. So, wherever possible, we prefer to look at the high street options first. Do we fit those lenders’ criteria? They always base their decisions on a few central things: your salary and dividends, your salary plus net profit, something called profit on ordinary activities before tax, and even retained profits as well.

If you fit the criteria, you can get a standard, vanilla mortgage with Halifax, Santander etc., without having to take a specific limited company director product. If it gets a bit more complicated, those specific products are there. But going down the usual routes simply saves you money.

What are the eligibility criteria for obtaining a mortgage as a limited company director?

Aside from the obvious things around credit profile or deposit, which I’ve covered off previously, we’ll look specifically at limited company criteria here.

The minimum trading period is one year. If you don’t have at least one set of accounts, a lender has no reference point. Having said that, if you have set a company up and have an underlying contract, we might be able to get you a mortgage as a contractor. That’s a separate thing. Our contractor mortgages page will run you through the rules there.

If you have two years’ accounts, we can aim for nearly all the high street. With three years’, you’ve got the whole market. Some banks look at the most recent two years’ trading, plus the third as a reference point.

Banks like to see either stable or increasing profit. If it varies, we might need to explain why.

Another big checkpoint around eligibility is for the company to be profitable – most banks want to see that. If there’s been a dip in profits or even a loss, it’s not the end of the road, but it might rule out the big six.

With one or two banks, particularly for larger loans and high net worth clients, that’s not such an issue – particularly if there’s a rationale. It might be that you’ve acquired another company, or you’ve had a big outlay for materials or stock. Just tell us the story – it’s not the end, but it does need to be explained.

Lenders are getting much better at looking at your balance sheet. Previously, they would just look at your profit, salary and dividends. A negative balance sheet isn’t a problem in terms of day-to-day trading, but it would mean some banks will decline the application.

Just give me the information and let me work through it. We might still be able to approach the big six – plus, there are other products we can consider as well.

Can I still get a mortgage if I have a limited trading history as a company director?

I just explained what lenders look for in terms of minimum trading times. Something else to highlight is that if you have other assets or income, that can be a bonus – particularly in the high net worth space.

So if there is a limited trading history, assets and other income could play a role as well, and also the contractor point I mentioned.

Are there any advantages or disadvantages to getting a mortgage as a limited company director rather than a sole trader?

This is largely a tax question. Once your income gets above a certain level, it makes sense to incorporate because it’s better from a tax perspective. But I can’t get into the pros and cons of which route to go down. That’s a conversation for you and your accountant.

You’ll come back to me either as a sole trader or limited company director. I’ve done all of those things in my time – been a part of an LLP, run a limited company, been a sole trader, literally everything. These things do change based on what you’re doing and other activities.

It’s always a tax question. However, most banks look at your total time as self-employed. If you’ve been a sole trader for three years and incorporated for one, you’ve been self-employed for four years – which is positive for a mortgage.

One advantage of being a limited company director is that taking your income as dividends is more tax advantageous, and banks also lean into that. Some will ‘gross up’ your dividends. If you took a dividend of £100,000, they’d equate that to £120,000 in income, because they add the tax back in – as they would do for someone under PAYE.

That can be slightly more favourable. But how you get there is ultimately a tax position, which isn’t my remit.

Are there any restrictions or limitations on the types of properties that can be purchased with a limited company director mortgage?

Lenders have set criteria for very different things, and they will lend based on certain types of properties, levels of income, credit profile and probably 100 other factors as well.

It’s a layering of criteria. First we would find a lender that’s good with limited company directors, and then we look at the property you want to buy. They’re completely separate things. One lender might be perfectly happy to lend you the money, but not on the property that you’re buying.

So you would present the information to us, tell us about the property you’re buying and we work backwards from there.

A key point on property is that the lenders’ priority is reselling it. Banks look at the worst case scenario – how easily can they value it, and how quickly could they sell it? The ideal property from a bank’s perspective is a terraced house in a major city, because there’s millions of them, they’re easy to value and easy to sell.

If it’s more expensive, cheaper or unusual, banks do have restrictions – which typically mean larger deposits. Deposit is key. If you had a 25% deposit banks will be happy to lend on most properties, unless it’s very unusual.

Can I use my limited company’s assets to support my mortgage application?

Yes. If you’ve got other income or assets to lean on, that can be helpful. But typically, this is the reserve of high net worth clients.

A few years ago, the Financial Conduct Authority came up with a definition of high net worth, which is an income of over £300,000 and assets of over £3 million. If you tick those boxes, you’re more likely to be able to do this.

Other banks will lend on other assets aside from property. There’s something called a Lombard loan, where you can lend against shares and other things. It’s a niche proposition, but it’s possible.

It can help if you have other property. If the property is the business, you might be able to leverage that. Talk to us about it, because there may be options there.

How can I improve my chances of getting approved for a mortgage as a limited company director?

There are the obvious things that you can control – like your credit score. Make sure all your credit is paid on time and cleared where possible.

A big one people overlook is your address history. When you apply for a mortgage, whether you’re buying or refinancing, your credit file needs to reflect your history. Most people fail credit scores because their bank is registered at their parents’ address, or a rental property they lived in a year ago. If you can tidy all of that up ahead of an application, that has a positive impact.

The other big one that’s in your gift is the deposit. For every 5% deposit you put down, you have more choice of lenders and at lower interest rates. The magic number is 25% deposit, at which point you’re considered low-risk from a lending perspective. That’s because house prices have never gone down more than 25% in any one cycle.

If you’ve addressed those and you’re still struggling, particularly on the income side of things, have you considered getting someone else to buy with? Is there a friend or relative who could act as a guarantor? This is becoming very popular. There’s lots of different ways around that. Look at the First Time Buyer page on the website for more on this.

This is almost too obvious to say, but please pay your tax. HMRC are now leaning on lenders to ask for a document called your tax year overview, which just confirms what tax you’ve paid.

It’s important, because if you’ve got a big tax bill outstanding, lenders won’t be happy. HMRC will also ask lenders why they are funding people who aren’t paying tax. Just be aware of that.

Can I use a limited company director mortgage to purchase a Buy to Let property?

For a Buy to Let, you still need to tick those criteria boxes I mentioned. We’ll need your income and to prove you’re credit worthy, etc.

You may want to buy a Buy to Let through a limited company for tax reasons, and in fact, some lenders now let you buy property through your trading company, but it’s a niche proposition.

Again, we’re veering into the tax area. As always, please get tax advice. However, I can’t actually remember the last time I dealt with a new Buy to Let purchase that wasn’t done through a limited company.

Do seek tax advice, and bear in mind that your accountant might be great doing your company accounts, but they may not be great at giving property advice. Property tax is a different animal, and if they’re not forthcoming on that, I’ve got some great contacts for you.

How does being a guarantor for another person’s mortgage affect my own eligibility as a limited company director?

Undoubtedly it has an impact. Lenders work from affordability, which very simply is your income and outgoings. The guarantor thing is a grey area – because you’re sitting in the background in case something goes wrong.

Most banks factor that in. They may include the guaranteed mortgage balance and ask whether you can still afford the payments for that alongside a new mortgage. Other lenders will ignore it entirely.

You might show your last three months’ bank statements to prove you’re not contributing to that mortgage and it sits in the background, once you’ve helped a friend or relative to buy a home.

It’s worth being upfront about because it will come up with the credit score. It’s better to go to a bank that’s amenable to it. It may or may not be important. If you’re not borrowing a huge amount versus your income and the guarantee is quite small, it may have no impact at all.

It’s just one of the things we need to know about it. We can work around it, but it’s best to deal with it upfront.

Can I remortgage a property as a limited company director? What are the potential benefits here?

If you’re a limited company director and want to remortgage, that’s fine. The criteria for that are the same as we’ve discussed here – and there’s also a very good remortgage page on our website as well.

I’m also asked a lot about what happens if you own a rental property and you want to move it from your personal name into a limited company. You can absolutely do that. You just need to get tax advice to figure out where things sit.

Can I transfer an existing mortgage held personally to a limited company if I become a company director?

This is largely a tax conversation. I’m not qualified to give tax advice, so please speak to an accountant or a property tax specialist.

I can share some factual background, though. If it’s a residential property that you live in or use personally, there are no tax benefits to putting it in a limited company – because it triggers something called P11D, which is Benefit in Kind. You would then have to pay tax on the mortgage payments. That’s my understanding of the rules, but again, get advice.

If it’s a rental property, it can work far better from a tax perspective to own it through a limited company. Most people I deal with now when buying properties do it this way.

The same rules apply, but potentially you may have to pay stamp duty and other costs as well. You may be able to mitigate some of this, and I’ve got a good network of people you can speak to about that in a bit more detail.

We’ve covered the main questions for our part two episode. Anything else you’d like to add?

We certainly covered all those points in detail. The main point to take away is that this is a complex area. Lenders have many different ways to assess the same income, which gives you very different outcomes.

As a company director, you’re busy. I’ve run a company and managed teams – it’s exhausting. The last thing you need is to be dealing with something else. So just give me all the documents and let me deal with it.

Then, you can go about your day and do what you do best – making money and running your business. We can make this whole thing go much more smoothly for you.

Key Takeaways:

• Wherever possible, it’s best to aim for a standard mortgage with one of the Big Six high street lenders, as they have criteria for limited company directors (based on salary/dividends, net profit, etc.) and going this route can save you money.
• Lenders require a minimum trading period of one year with a set of accounts. Two years’ accounts open up nearly all the high street, and three years’ accounts grant access to the whole market.
• Improving your credit score (paying on time, tidying address history) and increasing your deposit significantly improves your chances. A 25% deposit is considered the “magic number” for low-risk status, offering the widest choice of lenders and better interest rates.
• The choice between operating as a sole trader or a limited company director is primarily a tax question that requires professional advice. Lenders generally consider your total time as self-employed (both sole trader and director time).
• Lenders assess a property based on its reselling potential, and unusual properties typically require larger deposits (e.g., 25%). For high net worth clients (income over £300,000 and assets over £3 million), company assets or other non-property assets may be used to support the application.
  
  

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.