To answer the question directly, yes, company directors can get a mortgage. Some people may feel as though the duties of a director in company law may restrict them from getting a mortgage or a business mortgage but that’s not the always the case. Often, mortgages for company directors are considered risky because lenders are wary of self-employed borrowers. When an individual is a limited company director, which usually means he or she is the sole director and owner of the company, then many brokers and lenders are skeptical about giving out a mortgage. However, nowadays company director mortgages have become a lot more common. If you’ve been wondering whether or not a company director can get a mortgage, below are some important things that you need to keep in mind.
As a company director, under the watchful guidance of your accountant, you will most likely be drawing a lower salary in order to obtain tax benefits. So, the money that you will draw as your salary will most likely be split between your salary and dividends. And of course, you will end up keeping some profits aside to reinvest back into the company. Most mainstream lenders and brokers will consider the salary drawn as the main source of income, which might restrict the LTV ratio in order to avoid risks. However, all the best online mortgage brokers in the UK will agree, a company director’s income cannot be solely calculated by looking at the salary. A specialised lender or broker will actually consider the salary drawn as well as the dividends, while there are quite a few experienced lenders who will also consider a share of the company’s profit as a part of the net worth.
Trading period is important
The first question most lenders will ask is, “How long have you been trading for”. As a company director, if you have only been trading for less than a year, then you will probably find it a little hard to secure a mortgage. On the other hand, if you have been trading for a year or two, then lenders will have a fair idea of your income tax returns which will better your chances of getting a mortgage. If you have been trading for over two years, then your chances of securing a mortgage are actually pretty high because the potential lenders will be able to consider multiple factors such as loan to value, credit check, declared income, affordability status, and so on. If you have been trading for a long period of time, get in touch with some of the best mortgage brokers London to find out which mortgage is the best for you!
Deposit amount can vary
Unlike regular borrowers who will have to put down a deposit of 5 or 10 percent, company directors will have to deposit at least 15 to 30 percent of the total value. By taking a higher deposit, lenders will be able to mitigate their risks, which is why most lenders cap their LTV ratios at 85 percent. Again, this will depend on the mortgage broker, the income level, and the trading period, but even the best of the best will not be willing to accept an LTV ratio that is higher than 85 percent.