Mortgage for Company Director on PAYE

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Paige talks us through mortgages for company directors on PAYE.

Can a company director on PAYE get a mortgage? Is it more difficult?

A company director on PAYE is someone who is paying themselves a salary – it’s pretty standard for someone working within a limited company. Most people pay themselves salary and dividends, or just salary. 

It doesn’t make it more difficult. We just need to have the appropriate level of evidence to show your income, which means there’s more paperwork.

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

It is possible, but it is a lot more difficult. A bank would generally ask for something from your accountant to show potentially your next year’s projections, or that this year’s accounts were strong. 

It would usually mean we have to move away from main high street lenders. But there are definitely lenders on the market who will consider a year’s accounts as long as everything is looking good.

What is the difference between PAYE and limited? Does this affect the mortgage process?

If somebody has a limited company and pays themselves a PAYE salary, they’re getting taxed at the source. In a limited company you’ll sometimes pay yourself dividends, and pay the tax on that towards the end of the year.

It doesn’t really impact the mortgage process. The most common way of doing this for tax reasons is that people pay themselves around £12,000 a year as a salary and then the rest on dividends. It’s all linked to tax, and for more detail you need a conversation with your accountant rather than your broker. 

We will get the accounts once they’ve been filed. Your accountant will have set them up in a way that will make it pretty easy for a broker to understand where your income is coming from.

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

Affordability will be based on what you’ve paid yourself, multiplied by 4.5. It’s sometimes a little bit more, but that’s the general formula for seeing how much you can borrow. 

Other things play into this including credit commitments and children. They will assess your income in different ways. Even if you are getting paid via PAYE, they may still want to see a tax statement from you to make sure you’re not drawing down any other income. 

They may also want to look at your company accounts and your business bank statements as well. You should be able to download everything online.

What documents do I need to prepare?

The most important thing for a limited company director is to have two years’ SA302s, which is a tax document. It’s also known as a tax calculation, and you can download it from HMRC or get it from your accountant. 

You also need the accompanying year’s tax year overviews which show how much tax you’re liable for. You also need three months bank statements from your personal account and business account to show the cash flow coming through.

What if my payslips are not considered as PAYE income?

This is quite common with a lot of the mainstream banks. They will consider you self-employed. It’s your company, and you’re paying yourself – so your salary can change at any point. 

So they consider you as self-employed, which is why having those tax documents is really important. They take the figures from those as your income, rather than whatever you’ve paid yourself in the last three or six months.

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

It depends on your business and what expenses you have. Generally speaking, people try to write off certain expenses for tax purposes, which can suggest you earn less income. You’re therefore paying less tax. I am not a tax expert, but something people will do to improve their chance of getting a mortgage is have fewer deductions. 

It can work against them as they pay the tax on the full amount they’re earning – but the higher the amount shown, the more borrowing you can get. So if you’re just writing everything off as expenses and paying as little as possible, the bank doesn’t know what you can really afford. They will base it on what they can see – which, in this case, would be less than your true income.

How much can I borrow and what deposit will I need as a company director on PAYE?

It follows the same standard. The amount you can borrow will be based on the average of the last two years accounts – or the lowest year’s account if that is your most recent year. 

You can get a mortgage with a 5% deposit, but I normally suggest that if you can get a 10% deposit you will usually get better rates. It can also allow you to borrow more money. It’s going to be very tight with a 5% deposit.

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

You can. The Buy to let Market is a little bit different. For a Buy to Let mortgage you need a 25% deposit and there isn’t always an income requirement from you. It’s based on the property itself. So it doesn’t matter how you’re paying yourself as long as we’ve got evidence that there is an income coming in. It’s not too difficult. 

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

Bad credit will affect any individual applying for a mortgage. Depending on the severity, we may have to steer away from the high street towards a specialist lender for adverse credit. 

That would generally mean higher rates and larger deposit sizes. 

The worse the credit, the more deposit they want you to put down, to show that there’s less risk involved with this transaction.

How does remortgaging work as a company director on PAYE?

It’s all assessed in the same way if you’re moving to a new lender. You’ll need to be showing that you can afford the mortgage. So if you’ve got varying levels of profit or income that year, it can impact how much you can borrow – similar to any self-employed individual. 

You’ll be assessed on your last two years, rather than just your payslips. If you’ve had a poor year, you could potentially do a product transfer where you stay with your current lender. They may offer you something – a broker will compare that against the market and explore what your affordability would be, to help you decide whether to move to something new or stay with your current lender.

How can a mortgage broker like First Thought Financial help? 

I definitely recommend speaking to a broker when you’re self-employed. Lenders may make you jump through a few more hoops to assess that your income is sustainable. We need to confirm you can maintain your income to cover the mortgage payments.

Brokers can go to each lender and see how much they’re going to offer you. It will vary by who we look at. The underwriting process can be complicated sometimes, depending on the nature of your job. 

So having somebody as your middleman between you and the bank, who can help ensure your answers present your case in the strongest way, may give you an advantage. We’re here to get you through the mortgage process pretty quickly.


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