Mortgages for company directors can be quite complicated and a little confusing. The irony of the situation is that company directors and other such self-employed individuals might find it harder to secure a good mortgage as opposed to their salaried employees. While some brokers and lenders might agree to a 10 per cent deposit for a year’s mortgage, others might insist on a 30 per cent deposit with a three-year mortgage. Here is everything you need to know about limited company director mortgages and how they work.

 Complex income structures and mortgages

For one, company directors often have a complex income structure. This is because company directors often choose to take a lower salary and couple that with dividends while leaving a certain amount of profit in the company, which is then reused as capital. Because of this complex income structure, lenders and brokers feel that company directors might not be the most stable borrowers. It is always a good idea to get in touch with a specialised broker or lender who deals with company directors. Typically, these brokers will look at your basic salary, the dividends, profit share as well as bonus or commission received. As long as you have all your financial statements and tax returns in order, securing a mortgage should not be too much of a hassle. 

 LTV ratio and mortgage deposits

In order to mitigate their risks, most lenders will restrict the loan to value ratio. In simple words, self employed mortgages usually have a lower LTV ratio which is around 85 per cent. There are very few lenders who will actually agree to give a company director a mortgage with a 5 per cent deposit; usually, the deposit amount varies from 10 to 30 per cent of the total value. In order to secure a good mortgage, company directors should deal with specific brokers who know how to calculate the correct monthly earnings ratio. As a company director, you can get in touch with the best online mortgage brokers in the UK to find the right mortgage for you! Usually, these lenders and brokers base the mortgage LTV ratio on the monthly salary, the dividends as well as a certain share of the profits of the company.

 Mode of repayment and mortgage rate

Apart from this, one important factor is the mode of repayment. When it comes to a company director mortgage, borrowers can choose between a repayment loan and an interest-only loan – to understand which repayment method will suit your financial needs better, speak to mortgage brokers London. In simple words, a repayment loan is when the borrower makes monthly payments until the loan is repaid within a decided term. On the other hand, an interest-only mortgage requires the borrower to only pay the interest on the mortgage; the principal amount is paid off later. Company directors can also choose between a fixed mortgage rate and a variable mortgage rate; the fixed mortgage rate remains the same for the full term, whereas the variable mortgage rate changes depending on the market. Usually, your lender or broker will structure your mortgage based on your affordability status, monthly income and risk profile.

Rachel Sterry