Why Is It Hard For Limited Company Directors To Get A Mortgage?
The mortgage lenders consider an owned or co-owned limited company as self-employed. Unfortunately, some directly deny that you will not find a mortgage, which is untrue. The reason is they don’t desire to put some extra effort into understanding your income. In general, it comes down to wariness about your future earnings reliability.
Generally, directors take income in dividend form and not PAYE [pay as you earn] method. It means your personal income depends on company performance and that can fluctuate. Some directors keep profit within the company and this will not be taken into account as your income. Or you just don’t have sufficient accounts as you started a year or two ago. These factors associated with income complexity take time for the mortgage lenders to analyze your affordability. Therefore, they prefer simple mortgage applications.
Fortunately, there are many lenders in the UK specializing in offering mortgages to self-employed limited company directors. If your mortgage application is rejected several times, then approach the authorized and FCA-regulated Right Mortgage UK advisors. It doesn’t matter if you are a sole trader, a company director with 1-year experience, or a new contractor startup, the advisers work tirelessly to match you with a suitable mortgage lender.
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What are the eligibility criteria for limited company directors to apply for a mortgage?
The limited company director has to provide simple things in their mortgage application.
- Trading history
- Steady income proof
- Good credit score
How much deposit is needed?
A good credit score and affordability can get you LTV [loan-to-ratio value] up to 95% and the deposit can be between 15 to 30%. Besides, you gain access to lenders asking for low-interest rates and offering flexible terms.
However, for complex mortgage applications [like limited trading history or poor credit score] you will need a large deposit. Discuss your needs with the right mortgage team on how to successfully secure a mortgage as a director of LTD Company.
How is affordability assessed?
Some lenders only consider income withdrawn and don’t consider the profits your company made. For example, if your company made a profit of £300,000 and you paid yourself £70,000 then they will assess affordability based on £70,000.
There are some specialist lenders, who consider your share in the company’s net profit. It makes a difference, especially when your target is to get a huge mortgage. So, when you consult the right mortgage advisor discuss it clearly before applying.
How long do you need to be in trading to get approval?
In the past, self-employed personnel need to be in trading for three years before they applied for a mortgage. Today, specialist mortgage lenders willingly approve the application with one year of trading account.
You need to have proof of contracts that guarantee future income. Steady reliable income for following years and subsequent profit indicates that mortgage applicant has enough income sources to handle their outgoings.
Look for the right mortgage advisors, who have experience in getting mortgages for self-employed with bad credit or complexities who are rejected elsewhere.