For tax reasons, when you are a Director, you are technically classed as employed. However, from a mortgage perspective lenders will usually treat you as self-employed. The percentage of shareholding in the firm that you own would normally need to be 25% or above to meet the self-employed criteria, though some lenders have a lower threshold.
What income can be used?
Directors typically pay themselves a basic salary and then take income from their company by way of a dividend. Some lenders will use these to assess your affordability. However, most Directors will not take all of the funds out of the company, which leaves excess money in the firm. In this case, there are lenders who will use your net profit for borrowing potential – rather than just the amount of money you have personally taken out as income. This will generally mean you will have a larger amount to put towards your mortgage application than if you had just used your salary and dividend.
What evidence will need to be supplied?
If you are using the salary and dividend approach, we will need to evidence the last two SA302 and Tax Year Overviews. However, if we are putting forward your share of the net profit plus your salary as evidence of income, we will need to see your latest years fully signed and submitted accounts. We may need the SA302 and TYO for confirmation but can use the higher income. We will also usually need to see the last three months business bank statements to confirm current levels of trading.
Other things to consider
1 Year Trading
YES, you can get a mortgage with only 1 years trading experience. This usually means that you will have either SA302 for year 1 or company accounts for a full 12-month period. There are more lenders open to this section of the market than people seem to think, so it is entirely possible to get a mortgage this way. You don’t always need 2 or 3 years’ worth of accounts behind you.
Latest Years Income
It is true that some lenders will want to average out your last few years income. However, there are a few who will consider using your latest years income for the mortgage. For a growing business this can make an enormous difference, especially for those who have only been trading for two or three years.
Obviously, the Pandemic has had some kind of impact on most people who are self-employed, whether this is an increase or a reduction in business. If you have taken any form of government support throughout the Pandemic this does NOT mean that you will automatically be declined for a mortgage. Each client will be considered on their own merits.