Published on August 8th, 2016 | by admin0
Limited Company Director Mortgages
Are you the director of a limited company, looking to raise a mortgage for the purchase of a property – either to live in yourself or as a buy to let proposition?
If so, the chances are that you have encountered some difficulties in arranging the mortgage advance you need. Some of your contacts might have suggested that you need, instead, to search for limited company director mortgages.
Although there are specialist mortgages likely to be more suitable for the directors of limited companies, in other ways, securing a mortgage advance is in essence no different than for any other individual.
Whether you are a company director or engaged in some other walk of life, any mortgage lender’s prime concern is that the loan is going to be repaid and, to seek reassurance on that score, the lender needs to assess whether the applicant appears to be able to afford the mortgage repayments.
In the case of buy to let property, this may be reasonably straight forward, since the lender considers the likely income stream from rents, which is going to be used to service the mortgage.
In the case of residential property for owner occupation, of course, there is no such income stream, so the mortgage lender looks to the applicant’s personal source of income.
For those who are in regular, full-time employment, this typically involves a consideration of the individual’s stated salary, supported by pay slips or salary statements issued by his or her employer.
A guide to mortgages published by the Council of Mortgage Lenders (CML) describes the income and expenditure calculation which the individual in full-time employment might make.
For directors of limited companies, however, the situation is likely to be more complicated from the lender’s point of view.
The company director may be drawing a salary from the company and, in addition, may also be enjoying an income from any dividends it pays. In both cases, however, salary and dividends may change, depending on the commercial performance of the company. The lender finds it especially difficult, of course, to assess these sources of income if the company has not been trading for very long and there is only a limited history of audited accounts.
Furthermore, the prudent company director may have decided to reduce his or her tax liabilities by leaving a greater proportion of the wealth generated by the company in its retained profits. Unfortunately, however, the director’s share in those profits is unlikely to be taken into consideration by many mortgage lenders.
These differences may help to explain why you have encountered difficulties in securing a mortgage from some lenders.
The specialist broker
As in many cases, special financial circumstances – such as those of the limited company director – may require input from a specialist financial adviser, in this case an independent, specialist mortgage broker.
Because a specialist broker is familiar with the ways in which you are generating your current wealth and the difficulties you may be experiencing in arranging a mortgage with certain lenders, the broker’s expertise and experience is applied in identifying those lenders prepared to take an overall view of the assets available to a mortgage applicant – namely, any salary drawn from the company, any dividends paid and the company director’s share in the company profits.