Where limited company directors and contractors may have found it hard to secure a mortgage in the past, we have witnessed a shift in the stance of mortgage lenders. Now many mortgage providers happily lend to limited company directors who can’t provide the ‘traditional’ proof of income sought.
Providing proof of income
Although mortgage lenders have changed their criteria to suit the shift from permanent employment models to ‘flexible’, the credit crunch has made lenders more cautious and ‘self-certification’ mortgages are now a thing of the past. The formal proof required for a mortgage is detailed below:
Proof: limited company directors and contractors
Criteria may differ between lenders but as a limited company director or contractor, you can expect to provide at least two years of business accounts and HMRC self-assessment statements. However, some may only require a 12 month snapshot of your accounts.
Your mortgage amount will be valued upon both salary and dividends. It’s important to remember that money in the company will not be taken into consideration during your evaluation unless you are a freelancer working on an ad hoc basis. In these special circumstances your salary and your company’s net profit will be considered, but you would need to provide 3 years of company accounts and 3 months of bank statements.
Factors to consider:
- If your limited company has been running for less than 12 months you are unlikely to get a mortgage.
- Missed payments or personal debts affecting you or your spouse’s credit rating will impact upon the loan application.
- Also, how ownership of the company is shared will be taken into consideration.
- A contractor who takes breaks of more than 8 weeks between contracts will be considered a risk.
It is important to approach the right broker when applying for a personal mortgage. If you approach a ‘high street’ lender and have a loan application refused, you will receive a black mark on your credit rating.
There are now specialist brokers handling mortgages for limited company directors and contractors, with competitive ‘high street’ rates. It’s possible to borrow up to 5 times your annualised income. Limited company directors and contractors approaching a broker with a large deposit will have the most successful outcome.