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Dividend Mortgage
Can you get a mortgage using dividends?
Yes, absolutely. Dividends are a commonly accepted form of income for a mortgage. The vast majority of lenders will take them into account alongside your salary. A smaller group uses them on their own – the trick is knowing which lender will treat dividends most generously for your setup and your business.
How do mortgage lenders assess dividend income when applying for a mortgage?
Lenders will usually look at the last two years’ dividends drawn from the limited company, and either average them or use the latest year if it’s lower than the year before.
They evidence this through your personal tax calculations and tax year overviews, which are within your tax return documents.
A few lenders will use your share of your net profit instead of your dividends, which can boost your affordability.
Do different lenders treat dividend income differently when assessing affordability?
Different lenders can come up with different borrowing figures for the same person. They can be quite far apart just based on how they treat dividends. Some take a strict two-year average, while others can take the latest year.
Some lenders can take salary and net profit instead of dividends. It also depends on the percentage of the business you own – whether that’s 100% or less than 50%, for example. Some lenders only count dividends if you also draw a salary.
There are lots of different ways to assess the income and lenders all do things differently.
Can I combine salary and dividends to improve my mortgage eligibility?
Yes – that’s the standard approach for a director. Lenders take salary plus dividends as your assessable income. That combined figure drives the affordability calculation.
How many years of dividend income do lenders usually consider for mortgage applications?
Two years is the standard. One year is possible with a smaller group of lenders, depending on your situation.
If lenders do use the latest year, it needs to be quite a strong, healthy looking year of business. Sometimes you will also need a larger deposit.
Three years’ records are rarely asked for, unless we’re going to private banks. If you can show a steady or growing trend of income, everything becomes easier.
Are there any mortgage products designed for borrowers with dividend-based income?
There are no products specifically presented as dividend-only mortgages, but some lenders position themselves to handle complex income and self-employed income. That often involves using dividends or share of net profits.
The product itself will be a normal residential or Buy to Let mortgage. Often someone who’s self-employed can get the same rates as an employed person. It’s the lender’s underwriting criteria that makes it work for someone on a dividend income.
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Can dividend income from multiple companies be included in a mortgage application?
Yes, and this comes up more than people expect. Directors of two or three companies can use dividends from them all, provided each is properly evidenced through tax returns and accounts.
Some lenders do cap how many businesses they’ll consider. Others have no limit as long as the figures stack up. It’s all about the documentation we can use to prove your income.
How do lenders calculate affordability if my dividends vary year to year?
This is where the lender choice really matters and your broker comes into play. If your dividends are going up year on year, some lenders will take the latest year as your income. If your dividends are going down, most will take the lower year. Others will take an average of the two.
If your income’s jumping around, an underwriter may want a written explanation from your accountant to allow you to reach your maximum mortgage capacity.
There’s usually a route through, but the wrong lender could wipe out as much as a third of your borrowing – so it’s really important to go to the correct one.
Will using dividends for a mortgage affect the interest rates or terms offered?
No, not really. Once the lender has accepted the income, the rate is based on the Loan to Value, the term and the product type. It’s the same for any borrower – there isn’t a special dividends rate. The challenge is purely getting the income recognised at the right level.
What documentation is typically required to prove dividend income for a mortgage application?
Two years of tax calculations and tax year overviews from HMRC or your accountant are the starting point.
On top of that, we need two years of full company accounts or an accountant’s certificate or reference, and potentially three months of personal and business bank statements.
You’ve just got to get organised. As your brokers we will make sure we get everything upfront to make sure the application goes as smoothly as possible.
How do I apply for a mortgage using dividends and how can a mortgage broker help?
Every lender has different criteria and ways to assess your affordability for a mortgage.
When you’re self-employed, it’s really important to have a broker steer the ship for you to get the borrowing you need. It’s really important.
Key Takeaways:
- Dividends are a commonly accepted form of income for a mortgage and are typically combined with salary to determine a director’s assessable income.
- Lenders’ methods for assessing dividend income vary significantly (e.g., two-year average, latest year, or share of net profit), which means different lenders can offer substantially different borrowing figures for the same applicant.
- The standard documentation required is two years of personal tax calculations and tax year overviews from HMRC or your accountant, along with two years of full company accounts.
- It is possible to include dividend income from multiple companies in a single mortgage application, provided each company’s figures are properly documented through tax returns and accounts.
- Using dividends for a mortgage does not affect the interest rates or terms offered; the rate is based on standard factors like the Loan to Value, the term, and the product type.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.