Mortgages for Limited Company Directors

The director's problem

A tax-efficient director takes a small salary, modest dividends and leaves the rest in the company. Most lenders add salary to dividends and stop there, so a business generating 150,000 of profit can look like a 35,000 income to an underwriter.

This is the single most common reason a profitable company director is told they cannot borrow what they need, and it is almost always solvable without changing how you pay yourself.

Retained profit lenders

A number of lenders, including several building societies and specialist providers, will assess salary plus your share of company net profit before tax or after tax, drawn or not.

Worked example: salary 12,570, dividends 25,000, company net profit 120,000, sole shareholder. A salary plus dividends lender sees about 37,570 and offers roughly 169,000. A retained profit lender may see over 130,000 and offer around 585,000 subject to affordability. Same company, same year, entirely different outcome.

What these lenders ask for

Expect closer scrutiny of the business in exchange for the larger figure.

• Two years of finalised accounts prepared by a qualified accountant
• A shareholding above their minimum, often 20 or 25 per cent
• Confirmation of your percentage share of profit, usually from the accountant
• Evidence the business is not reliant on a single short-term contract
• Details of directors loans, which are often deducted from the assessable figure

Planning ahead

If a purchase is 12 to 24 months away, a short conversation with your accountant now can change what is available later. Increasing declared drawings for a year is one route, but it is rarely the cheapest; choosing the right lender is usually better than paying extra tax to look better on paper.

Where you hold multiple companies or a mix of dividends, property income and consultancy, the case is a complex income case rather than a simple director case, and it belongs with a broker rather than a branch.