It is somewhat ironic, that company directors often find it more difficult to get a mortgage than the employees whose salaries they pay.
In these unprecedented times it has become even more challenging. An accountant can help!
The lending criteria used by many lenders is not particularly geared towards self-employed applicants, and even less so when it comes to the more complex finances of limited company directors. In addition, your earnings may be lowered to help pay less tax and keep funds within the business.
David Gormer was discussing this just the other day with his personal mortgage broker. Here we share a few nuggets of wisdom that could help company directors improve their chances of obtaining a mortgage in the present climate.
1. Self-employed Documentation
Lenders will process Company Directors as self-employed in all situations. Lenders will assess income in different ways, so the following documentation should be prepared:
- Two years worth of accounts detailing the net profit of the company
- Evidence of your earnings including salary and dividends through a SA302
- A full trading history
- Lenders will sometimes look at projected figures from an accountant.
2. Your Business Type
The type of business you have could also affect your mortgage application. You should be aware of the following:
- Sole traders: If you’re a sole trader, it’s likely that you’ll need to supply a tax self-assessment. The HMRC can do this calculation and provide you with an SA302. This shows your income and corresponding tax that is due.
- Partnerships: As a partnership, you will need to provide evidence of the share of the business profit you receive. This is so the lender can review the business accounts and see the money you receive from the total business income.
- Limited company: As an owner of a limited company, you are typically an employee of the company that receives a salary as well as a profit dividend. It’s important that you make sure the accounts that you submit reflect both salary and dividend to give the lender a true reflection of your income.
3. Your Credit Report
Always obtain a credit report. Lenders will look at your credit file before they look at anything else. Credit taken out in a company name will sometimes appear on the personal credit file and adversely affect affordability. You can check your credit score with Experian or Check My File.
4. Affordability
Lenders now work on an affordability basis as opposed to a set income multiple, but they will still use income multiples as a guideline. The largest income multiple is 5.5.
5. Your Deposit
The more money you can use towards your deposit, the more likely you are to get approval for your mortgage. This will lower your LTV (Loan to Value), reducing the amount that you will need to borrow from your lender.
6. Government Assistance
Lenders will ask if you have taken any government assistance such as bounce back loans.
My opinion is to always speak with an accredited and authorised mortgage broker, who is able to access the whole of the market and has experience of the self-employed market, this will save not only time, but also money. And above all, always have a plan.
