Mortgages for company directors and business owners

If you run a limited company, you've probably structured your income the way your accountant suggested: a modest salary, dividends on top, and profit retained in the business. Sensible for tax. Unhelpful for a mortgage, because many lenders will look at your salary and dividends, ignore everything your company actually earns, and offer you far less than your business can genuinely support.

The good news is that the right lender can see the full picture. The difference between the wrong lender and the right one can be enormous, sometimes double the borrowing or more, from exactly the same set of accounts.

Why directors get short-changed by the high street

Most mainstream lenders assess a director's income as salary plus dividends drawn. That works fine if you pay yourself most of what the company makes. But if you keep profit in the business, that money is invisible to them.

Take a director on a £12,000 salary drawing £38,000 in dividends, whose company also retained £40,000 of profit. A salary-plus-dividends lender sees £50,000 of income. A lender that works from salary plus the company's net profit sees over £90,000. Same person, same company, wildly different borrowing power.

This is the single most important thing for directors to understand: you don't need to change how you pay yourself. You need the lender whose method fits how you already run your business.

How different lenders assess director income

There are two main approaches.

Salary plus dividends is the standard high street method. Your PAYE salary and the dividends you've drawn are added together, usually averaged over the last two years. Simple, but it penalises anyone who is tax-efficient.

Salary plus net profit is the approach used by a number of lenders, including some big names, not just specialists. They add your salary to your share of the company's profit, whether you drew it out or not, on the basis that retained profit is still your money, it's just sitting in the company. For directors who retain profit, this method usually produces a much higher income figure.

Within that second group, the detail varies. Some use profit before tax, some after. Some average two years, others will work from the latest year if the trend is upward. Most want you holding a decent shareholding, typically 20 to 25% or more. This is exactly the kind of criteria maze where a broker who places director cases regularly earns their fee.

What you'll need to prove your income

Expect to provide your last two years of finalised company accounts, your personal tax calculations (SA302s) and tax year overviews, and around three months of personal and business bank statements. Many lenders also want a reference from a qualified accountant. It is much the same evidence any self-employed applicant needs to pull together.

Two years of accounts is the standard ask. If your company is younger than that, options narrow but don't vanish, a handful of lenders will consider one year, particularly if you were previously employed in the same line of work. That is a more specialist placement, and one to take advice on before applying anywhere.

Timing matters more than most directors realise

Because lenders work from your finalised accounts, the shape of your last year or two of figures drives everything. A strong recent year helps enormously. A dip, even a deliberate one, perhaps you invested heavily in the business, can drag an average down.

So if a move is on the horizon, it is worth a conversation twelve months or so before you apply, ideally involving your accountant. Not to change your tax planning, that's their domain and yours, but so everyone knows what the accounts will show when a lender reads them, and you can time the application to put your best year forward.

A quick word for contractors

If you contract through your own limited company, some lenders will ignore the accounts entirely and work from your day rate instead, annualising it across the year. For many contractors that produces the highest income figure of all. If that's you, it's worth exploring both routes before deciding how to apply.

How we can help

This is one of the areas where advice makes the biggest measurable difference. We work with directors and business owners across Edgware, North London and Hertfordshire, run your figures through both assessment methods, and place your residential mortgage with the lender whose criteria give you the strongest position, without you changing a thing about how you pay yourself.

If you run a company and want to know what you could really borrow, email solomon@kudosmortgages.com or book a quick call and we'll run the numbers properly.

Frequently asked questions

Can I get a mortgage as a limited company director?

Yes. Directors are well served by the mortgage market, but lenders assess your income in different ways. Choosing the lender whose method suits your situation, particularly if you retain profit in the company, makes a significant difference to what you can borrow.

Do lenders count retained profit?

Some do. While most high street lenders only count salary and dividends, a number of lenders will assess salary plus your share of the company's net profit, which includes money left in the business. For tax-efficient directors this often produces a much higher income figure.

How many years of accounts do I need?

Most lenders want two years of finalised accounts and will average them. Some will work from the latest year alone if profits are rising, and a small number will consider one year of accounts, usually where you have a track record in the same field.

Will taking a small salary hurt my mortgage application?

Only with the wrong lender. A low salary and modest dividends can limit borrowing with lenders who only count drawn income, but lenders who assess net profit see the company's full earnings, so your tax-efficient structure doesn't count against you.

Do I need an accountant for a director mortgage?

You'll need finalised accounts and tax documents, and many lenders ask for a reference from a qualified accountant. It also pays to involve your accountant early if you're planning to buy, so your accounts tell the right story when a lender reads them.