If you’re in the market for a limited company Directors mortgage, at some point along the way you’re going to be wondering how your earnings are calculated for mortgage purposes, especially if you take the majority of your salary as dividends.
What are Dividends?
Dividends are a share of a limited company profit paid to shareholders by the company. Dividends are subject to income tax and will be considered as part of the director’s income by most mortgage lenders, however, a specialist broker will be able to advise you as to exactly which lenders do and don’t accept dividends as part of your salary calculations.
Are Directors only paid Dividends?
Most Directors take a salary and dividend, as it’s more tax-efficient to be paid in this way. Typically, Directors will take a smaller salary and a larger dividend, however, this is a generalisation and not all companies will pay their Directors in this way.
Can I apply for a Directors mortgage with Bad Credit?
Even if you have a bad or adverse credit in the past, you should still be able to apply for a Limited Company Directors Mortgage providing your credit problems are in the past and not the present, and providing you can prove your current income and expenditure sufficiently to a potential lender.
When a mortgage broker or adviser is helping you to calculate your earnings for a mortgage application, they’ll look at whether combining your salary plus your dividends or using just your dividends, will work better for you in terms of generating you the most favourable offers possible. Some lenders may prefer to consider net profits, and your share of the same, and an experienced mortgage adviser should look at all the options with you to help you decide which is best for you.
I own a 20% share in a company, do I need a Directors mortgage?
If you own 20% or less of a limited company, mortgage lenders will class you as an employee for the purposes of your mortgage application. This actually works in your favour, as it makes applying for a mortgage a simple matter of collecting your most recent payslips, plus your other supporting information, only.
What % of a company do I need to own to be classed as a Director?
In terms of your mortgage application, lenders will classify anyone who owns more than around a 25% stake in a limited company as a Director, and you will have to apply for a limited company Directors mortgage. Each lender is different, so it could be between 21% and 33% – but that’s down to us to advise you.
Do I need the other shareholder’s agreement to apply for a Directors mortgage?
No, that won’t be necessary as it’s your personal shares in the company and your personal income only that are being taken into account when you make the application for a mortgage.
Is it hard to get a limited company Directors mortgage?
There’s a genuine misconception that its difficult to apply for and to successfully achieve a mortgage as a limited company Director. This isn’t true, providing you have an experienced mortgage broker or adviser to assist you. You will need to provide different proofs of income in support of your application, but none of these should be difficult for you to obtain and thus neither should the mortgage, providing you can meet all of the criteria set out by the lenders.
What do I need to provide to get a limited company Directors mortgage?
As well as your normal bank statements, utility bills, proof of ID and three months’ payslips; you will also need your limited company accounts and your personal tax returns. These figures may be different, as your company tax year and personal tax year may differ in timings and not start/end in the same month. This doesn’t matter, as your mortgage adviser will reconcile the figures before submitting your application.
It’s critical for anyone considering a Limited Company Directors Mortgage to take the right advice at the earliest possible stage. Contact Us to find out more about how we can help.