Mortgage for Company Director on PAYE

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Mortgage for Company Director on PAYE, Yellow Brick Mortgages
Mortgage for Company Director on PAYE, Yellow Brick Mortgages

Mortgage for Company Director on PAYE

A guide to mortgages for company directors on PAYE, with Gethin Davies and Leila Ouchikh.

Podcast approved by The Openwork Partnership on [xx/xx/xxxx].

What is a company director on PAYE, can they get a mortgage and is it more difficult?

A company director on PAYE could mean a couple of things. They may have a shareholding in a business, or be a company director of a larger firm. They’re not paid on a self-employed basis, they’re on the payroll.

It is certainly possible to get a mortgage. In terms of whether it’s more difficult, sometimes it can be.

Some lenders have criteria based around the percentage shareholding you have in a business. If you own more than 25%, lenders would class you as self-employed. As a company director, you might not see yourself as self-employed, but for lending purposes that’s how you are treated.

Lenders would either look at your salary and dividends or view the company accounts. Being treated as self-employed means you need to have one or two years’ history in the business. That’s where it can get a little bit tricky.

If you have less than a 25% shareholding you would just be treated as normal on an employed basis.

Can I still get a mortgage if I am a company director on PAYE and only have a year’s accounts?

The simple answer to this is yes, but getting a mortgage broker’s assistance is certainly recommended. This situation won’t suit every lender and a number of factors can have an effect – your position within that limited company, your shareholding and your prior role.

You might have been a sole trader and then become a company director on PAYE – and lenders may see that differently.

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What is the difference between a PAYE and limited? How does it affect the mortgage process?

If you had less than 25% share in that limited company you would be treated by a lender as employed, using payslips. If you own that limited company or have more than a 25% share, they look at your limited company accounts and use that income. It’s just two different routes in how the lender will treat you.

How will lenders assess my income as a company director on PAYE? How is affordability calculated?

With regards to assessing income, if a salary alone is not enough to give you what you need, they will also take into account additional income as a limited company director. That could be dividend income or retained profits.

Again, different lenders will use different figures for affordability. What one lender may lend may be very different to another, even though your figures are exactly the same. Lenders also have different rules on whether they will use the latest year’s figures for affordability, or the average of the last two or three years.

If you’ve got declining profits and your income has gone down over the last two or three years, they will want to know the reasons behind it. If profits are increasing, lenders won’t always use the higher figure, especially if the jump is significant as it may not be sustainable.

They could decline your application on either basis. It’s very complex, so you should certainly seek the assistance of a broker.

What documents do I need to prepare?

As a limited company director, you should be preparing accounts. You may also need a tax computation and tax calculation, which your accountant can send to you. That will show the lender your salary and dividends.

Some lenders will use your net profit, in which case company accounts would be helpful. You will need pay slips if you have less than a 25% shareholding.

What if my pay slips are not considered PAYE income?

The best idea is to provide the documents your broker asks you for. Different lenders ask for different documents – and this is something that often comes up when I’m speaking with self-employed clients. They often say that they are definitely employed, according to their accountant.

But when it comes to mortgages, it can be different. Lenders will ask for a document such as your SA302, they might ask for company accounts, tax year overviews or a combination of all of those things. Just provide that and your broker can do the assessment and go with a lender that will fit you.

Can I get a mortgage as a company director on PAYE if my accountant is working to minimise profit in my business for tax purposes?

This is definitely something that I see. A company director might tell me they are earning £60,000 and then they produce figures that state their salary as £12,500. It’s a way to reduce tax – that’s certainly common in the self-employed industry.

While your accountant will support you with regards to your accounts and tax, it doesn’t always work out so well in getting a mortgage. Obviously, you’ve got to evidence your earnings to a lender, and if your accountancy reduces the amount of profit you have, it will impact how much you can borrow.

So my advice is if you’re looking to get a mortgage, you may want to mention that to your accountant before they submit your accounts.

How much can I borrow and what sort of deposit will I need?

This will depend on income, fundamentally. You can borrow up to 95% of a property price with a 5% deposit. The lender would look at your salary and dividends, or salary and net profit, as well as your outgoings and credit commitments to work out how much you can borrow.

Can I get a Buy to Let mortgage as a company director on PAYE?

Yes. The difference with Buy to Let is that the rental income you could fetch from that property will drive what you can borrow.

The key thing to note is how many properties you have and your income tax bracket – because that will have an impact on how much you can borrow.

A lot of people, especially experienced landlords, will buy properties within a limited company structure. There may or may not be benefits to doing it that way. But yes, certainly you can get a Buy to Let mortgage as a company director on PAYE.

How does bad credit affect me getting a mortgage as a company director on PAYE?

Bad credit is pretty much the same for an employed person or a company director. If you don’t have great credit, you may need a higher deposit.

You might not be able to get a mortgage with a 5% deposit or even a 10% deposit, depending on how historical the adverse credit is and what the details are. There’s no difference for a company director compared to a regular employed person.

How does remortgaging work for a company director on PAYE?

Whether you’re employed, self-employed, a sole trader or limited company director on PAYE, your circumstances will be assessed at the time you remortgage.

If you’ve purchased a property whilst employed and then gone self-employed as a limited company director, that new criteria will kick in. We will need to know how long you’ve been self-employed.

Give your broker as much information as you can when you are first taking out a mortgage – as a First Time Buyer, when you’re moving home or doing your remortgage. The advice we give might differ based on your future aspirations.

This is something that came up for me personally. I was employed, I’ve now gone self-employed – so I had that in mind when I took out my current product. The advice my broker gave was specifically for my circumstances at that point.

Lenders can also do product transfers. If your circumstances have changed, don’t panic. If you can’t get a mortgage with a new lender, you can do a product transfer with your current lender, which doesn’t involve assessing criteria.

How can a mortgage broker help with mortgages for a company director on PAYE?

Mortgage brokers can help massively in any situation. We will go through a full fact find with our clients and seek lenders that can accommodate them.

You could waste a lot of time sitting down with different high street banks and building societies – when actually a broker can find you a lender to suit you. We save a lot of time and potential disappointment further down the road.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

Approved by The Openwork Partnership on [xx/xx/xxxx].