Expert Guidance on Mortgages for Limited Company Directors
Your property may be repossessed if you do not keep up repayments on your mortgage.
Mortgage Eligibility and Income Assessment for Company Directors on PAYE
Company directors on PAYE are treated as employed for mortgage applications, simplifying the process of qualifying based on their earnings. Most directors take a modest salary through PAYE and supplement it with dividends from company profits. Lenders generally assess income by averaging the PAYE and dividend figures over the last two years, with preference given to steady or increasing profits.
In cases where income fluctuates, lenders may rely on the lower year to ensure affordability. Borrowing limits for directors are calculated using standard income multipliers, often ranging from 4.5 to 5 times annual income. Larger deposits, while not mandatory, can reduce perceived risk, improve borrowing terms, and secure more favourable interest rates.
FAQ'S
Can I get a mortgage if I’m a company director on PAYE and only have one year’s accounts?
Yes, you can. You’re self-employed, so it’s going to be a little bit harder and not as many lenders will be available to you – but this is where a broker comes in.
We have the knowledge about lenders’ criteria. They might reduce the Loan to Value, which means you need to put a bigger deposit down. Lenders will want bank statements to see how your business is running – because you’ll be in the second year at that point.
They ideally want you to come from a background within that same industry. Like myself as a mortgage broker, if I was employed and then went self-employed a lot of lenders will be happy with that, as there’s a proven track record.
But if you’re going from being a builder to a mortgage broker, you’re probably going to trip up because you’ve not got that experience. It’s always subject to underwriter review. I’d also say that having an accountant is a must for you because lenders often want an accountant’s reference to share your projections for the following year.
On your bank statements, they’re looking for sustainable earnings. If you have earned £40,000 in your first year, the last three months’ bank statements will ideally show you’re earning a similar amount – so 25% of that £40,000 or more.
What is the difference between PAYE and a limited company in how it affects the mortgage process?
In your limited company there could be quite a few directors with different shareholdings adding up to 100%. As a rule you would all take an income through Pay As You Earn.
Then, depending on how well the company is doing you would take a dividend, which is a share of profit. So if you own a 50% share in the company you’d end up with a 50% share of the profit.
Lenders usually view someone with up to a 20% to 25% shareholding as being employed by that company. They will just use your PAYE income. But if you are the sole owner of the business or a bigger shareholder, they will then take your PAYE plus any dividends.
So if you have a 100% share in your company you’re always going to be treated as self-employed. If you have been made a director of a company with a 5% shareholding, they will treat you as employed.
This can be complex, so if you’re unsure, get in touch. I’d just ask a few questions to find out you run the company, how it’s owned and who’s involved. I’d then know straight away how lenders would treat your income.
There are lots of different scenarios with regard to self-employed sole traders, limited companies and whether you have just one year’s accounts or more.
The Role of Mortgage Brokers for PAYE Company Directors
Navigating the mortgage market as a company director with a PAYE structure can be complex, but a broker simplifies the process significantly. Brokers are well-versed in the varying criteria of different lenders and can connect directors with options that align with their unique financial circumstances, such as low PAYE earnings, retained business profits, or credit challenges. For Buy to Let mortgages or more specialised needs, brokers offer tailored advice to match clients with lenders experienced in these areas. Instead of relying solely on high street banks, which often have rigid criteria, directors benefit from a broker’s wider network of lenders and in-depth knowledge. This expertise ensures directors maximise their borrowing potential, secure competitive rates, and receive personalised guidance throughout the mortgage application journey.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Most buy to let mortgages are not regulated by The Financial Conduct Authority
Vulnerable Customer
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