Mortgages for Limited Company Directors

Why your mortgage is more complicated than your friend's

If you're employed, your mortgage is dull in the best way. One payslip, one P60, one number lenders trust almost without blinking.

Run your own limited company and none of that applies. You're the shareholder, the director, and the employee, all at once. The company earns a profit, you decide how much of it to take out and how, and a lender somewhere has to turn all of that into a single income figure they're comfortable lending against.

That figure isn't fixed. It depends which lender you ask, and how they choose to look at your accounts.

The three ways lenders look at your income

There's no single rulebook here. Different lenders genuinely do this differently, and that's the single biggest thing to understand before you apply. Broadly, you'll come across three approaches.

Salary plus dividends. The lender adds your salary to the dividends you've actually taken out of the company. Simple, and it matches what's landed in your personal bank account. The downside: if you're deliberately leaving profit in the company, to build up a buffer, or because your accountant advised it, none of that counts.

Salary plus your share of net profit, after corporation tax. Instead of looking at what you drew out as dividends, the lender looks at what the company earned after tax that year, and takes your percentage share of it. This can work in your favour if you've been retaining profit rather than drawing it all out. It can also work against you if you drew out more than the company made that year.

Salary plus your share of net profit, before corporation tax. A smaller number of lenders go a step further back and use the pre-tax figure. The gap between this and the after-tax version is roughly the corporation tax rate, currently 19% to 25% depending on how much profit the company makes, so it's not a trivial difference.

None of these is 'the right one'. They're just different lenses, and the one that suits you best depends entirely on how you've chosen to run your company's finances.

Does how many shares you own change anything?

Usually, yes. Most lenders only use the 'share of net profit' approaches above if you own a meaningful slice of the company, commonly somewhere between a fifth and a quarter of the shares, sometimes more. Below that, you may simply be treated like any other employee, salary only, however senior you are.

Exact thresholds vary by lender and do change, so this is one of those details worth checking against your actual shareholding before you assume either way.

If you and a partner or co-director split the shares, the same set of accounts can be read differently depending on who's applying, and whether you're applying jointly.

New company? One year's accounts is not a dead end

If your company is less than two years old, your lender options narrow, but they don't disappear. A number of lenders will consider a single year's accounts, particularly if your credit history is strong, you've got a healthy deposit, and you can show the business is more than a passing experiment, for example a previous track record in the same trade, or contracts already in place.

What tends to help: a professionally prepared set of accounts rather than a DIY job, an accountant who'll put a reference in writing, and realistic expectations that the choice of lender will be smaller and the rate may be a little higher until you've got two full years behind you.

See it in numbers

The clearest way to understand why this matters is to see the same accounts read two different ways. Try your own rough numbers below.

What you'll need to apply

• Two to three years of accounts, ideally prepared by a qualified accountant
• An accountant's reference, or SA302s and tax year overviews, depending on the lender
• Your last three months of personal and business bank statements
• Proof of your shareholding, if it's not already clear from the accounts
• Evidence of dividends taken, usually dividend vouchers or the accounts themselves

Common mistakes directors make

Retaining too much profit without realising it affects affordability. Leaving money in the company is often sensible tax planning, but it can quietly shrink your mortgage options if a lender only wants to count dividends.

Assuming every lender will read the accounts the same way. They won't. Which approach suits you best is exactly the sort of thing worth checking before you fall in love with a property.

Changing dividend strategy right before applying. A sudden spike in dividends the year before you apply can look engineered to a lender, and an accountant's reference will usually be asked to explain it.

Not having a professional accountant's reference ready. Many lenders require one, and it can slow an application down badly if it's requested at the last minute.

Key Takeaways

• Lenders use at least three different ways to read director income: salary plus dividends, salary plus share of net profit after tax, or before tax
• Which one suits you best depends on how much profit you've retained versus drawn as dividends
• Your shareholding percentage usually has to clear a threshold before profit-share approaches apply to you
• One year's accounts can still work, with a smaller pool of lenders, strong credit, and a bigger deposit
• A professional accountant's reference matters more for directors than for almost any other borrower type