Being a company director, applying for a mortgage can be a bit confusing. Not aware of what documents lenders want to see or how to calculate your income to know affordability. Most high-street lenders will have different document requirements for company directors mortgage affordability than for an employed applicant. Speaking with a Mortgage Broker Harrow and other locations in the UK can help you navigate these requirements more easily.
Let us look at in detail why standard mortgages do not fit the company directors and the preparation it requires for mortgage approval.
What Is The Difference between a Standard Mortgage And a Company director mortgage?
Standard mortgages are designed for employed applicants paid a monthly salary.
Someone with employed income will have different income documents needed than a company director.
Company director mortgages are just a normal mortgage, but the way lenders assess your income is different. In short, standard mortgages and company director mortgages there is any difference. It is only a term used for those who are self-employed and trade through a limited company.
How Income Is Calculated For a Standard Mortgage And For a Company Director’s Mortgage.
For standard mortgage applications, lenders usually look at the following income documents to work out income affordability.
- Recent payslip
- Bonus or overtime proof and taken as average.
- Details of employment and time in current job.
- 3 months’ bank statements for salary credit.
- Details of any credit commitments, like loans or credit cards.
For company directors, mortgage lenders would need the following income details to calculate income affordability.
- Details of any credit commitments, like loans or credit cards
- 3 months’ bank statement for personal and business accounts.
- SA302 and tax overview for 2 years, or some even consider one year.
- Company audited accounts or an accountant’s certificate may also be needed.
Most lenders will use a 2-year average of income, or some may look at the latest year’s income. Specialist lenders can consider net profit and salary for income assessment to get maximum lending.
Company Directors Mortgage Affordability Using Dividend or Net Profit
Employed applicants, when they apply for a mortgage, lenders use their salary plus overtime, commission, allowance or bonus income for mortgage assessment. When income assessment is done this way borrowing amount has remained more or less the same.
But with company directors mortgage applications depend on the lender being used; borrowing amount can change if a different source of income has been used. For example, someone with a salary of £12000 plus dividend income of £20000 total income is £32000 for the latest year. But if a reduced dividend is taken in the previous year, then lenders will take the income as the average of 2 years. Which will reduce the total mortgage amount.
Some lenders will consider a salary of £12000 plus net profit of £30000 rather than the gross income. By using net profit and salary total income would be £42000, meaning the higher mortgage lending. If the business is doing well and if they retain profit in the company, then that can be used as well towards mortgage affordability.
Company Directors Get the Same Mortgage Rates As Standard Mortgage
Yes, company director mortgages get similar rates to standard mortgages. But with a complex income type, many high street lenders may not be a good fit for a company director’s mortgage. Specialist mortgage lenders have a better lending approach, and that could reflect on mortgage rates.
Can I Do My Own Company Director Mortgage, Or Use a Mortgage Broker
Yes, anyone can do their own mortgage application, but the approval rate may not be the same as going through a mortgage broker. With a complex income type and a lot of preparation with regard to documents for a mortgage, a company director should seek assistance from a mortgage broker to increase the chances of approval. Top Benefits of Using a Property Finder in London in 2025.
Final Thoughts
Different income types and strict lender criteria, company director mortgages won’t be as easy as a standard mortgage. Always allow plenty of time to prepare and work with a specialised mortgage broker like MariannaFS, which will improve approval chances.
