Mortgage for a Company Director on PAYE
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Mortgage for a Company Director on PAYE
What is a company director on PAYE? Is it more difficult to get a mortgage as a company director on PAYE?
A company director on PAYE is someone who owns part of a limited company and draws their income as a salary through payroll, just like an employee would. They get a payslip, showing taxes deducted at the source, and they also get a P60 at the end of the year.
Where it gets interesting is that most lenders class anyone with a 25% shareholding as self-employed, regardless of how they’re actually paid. So, even though you’re being taxed like an employee, the underwriter wants to look at the business behind you.
It can therefore be a little bit harder and more complex. Criteria can tighten based on what documents and documentation we can supply.
Can I still get a mortgage if I’m a company director on PAYE and only have one year’s accounts?
Yes, you can. There are lenders who will work off one year’s accounts, but the choice is narrower and the criteria varies.
They’ll usually want to see strong figures, a clean trading history and potentially an accountant’s projection for the year ahead. The deposit requirements can also be slightly higher with a single year’s income.
I had a client recently in exactly this position, with one year’s trading and growing turnover – we placed it without any issues. There are definitely lenders and products available; it’s just knowing where to go.
What’s the difference between PAYE and limited? Does this affect the mortgage process?
PAYE is the method of paying tax. Limited is the company structure. A director in this situation is using PAYE inside their own limited company. A standard employed person on PAYE works for someone else and, for mortgages, those two profiles look very different.
An employed person hands over three payslips and that’s all we need for mortgage affordability. The limited company director needs to evidence their income and business performance.
How will lenders assess my income as a company director on PAYE? How is affordability calculated?
There are three main routes. The first is salary plus dividends, which is the most common approach. The second is salary plus a share of net profit, which is useful if you’re leaving money in the business.
The third, only available with a small number of lenders, is just your salary, in line with your shareholding if that’s under a certain threshold. If you’re a director of a business but you own less than 25%, many lenders see you as employed.
The route we choose can change your borrowing quite a lot – and that’s why it’s important to go to the right bank.
What documents do I need to prepare?
For most cases, I’d want the last two years’ tax calculations and matching tax year overviews. Then I need your latest P60, three months’ payslips and three months’ personal and business bank statements.
Along with that, there’s ID and proof of address. It does sound like a lot, but we usually get this all together in one go, and make sure the bank has everything all at once, packaged together neatly.
What if my payslips are not considered as PAYE income?
This can catch people out. Some lenders look at how the salary is processed and if it’s not run through a recognised payroll system or there’s no proper tax deduction shown, they’ll discount it altogether.
The fix is either to go to a lender that uses your tax return figures rather than your payslips, or work with your accountant to tidy up how your salary is paid. There’s never a hard stop, but how your payslips are considered could change the lender.
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Can I get a mortgage as a company director on PAYE if my accountant is maximising profit in my business for tax?
Obviously we aren’t tax advisors or accountants and we can only work with the documentation from HMRC. As a self-employed person, you’ll want to keep your tax bill down. But a mortgage lender wants to see your income coming out of the business, so there can be tension there.
The good news is that some lenders will use your share of the net profit of the business instead of what you’ve actually drawn as personal income. That way, the money sitting in the company still counts towards your income and borrowing.
It’s a conversation worth having with your accountant, and the timing is important. I’ll sit down with your accountant to get the documentation we need to give you the best advice.
How much can I borrow and what deposit will I need?
Borrowing is calculated at a multiple of between four and 5.5 times your income. A few lenders offer up to 6.5 times.
A 5% deposit will get you in the door, but the rates improve as you can put more deposit towards the house.
Essentially, the bigger the deposit, the cheaper the rate.
Can I get a Buy to Let mortgage as a company director on PAYE?
Yes, absolutely. Often it can be more straightforward than a residential mortgage. Buy to Let is mostly assessed on the rent the property will achieve, not your personal income.
You usually need a minimum income of around £25,000 to £30,000 a year, at which point the focus shifts onto the property and what it will rent for. That’s how Buy to Let lenders calculate the maximum mortgage.
How does bad credit affect me getting a mortgage as a company director on PAYE?
Bad credit doesn’t stop you getting a mortgage, but it potentially changes which lender you can proceed with.
If you’ve got a default, a missed payment, a county court judgment (CCJ) or worse, there are lenders that can help with this. It is obviously more expensive, and in lots of cases, you’ll be expected to put in a bigger deposit.
With any past credit issues, talking to a broker early on will be a huge time-saving exercise.
How does remortgaging work as a company director on PAYE?
It’s very much the same as a purchase. There are the same income assessments, documentation and affordability rules.
Where it gets a little bit interesting is with product transfers, where your current lender can usually offer you a rate or a new rate without any income checks at all.
The question is always whether to stay with them or to move to a new lender for a sharper rate. We always provide recommendations to our customers and discuss what’s best.
It’s not always about price – it’s also down to the needs of the particular client.
You’ve demonstrated this throughout the episode – but how can a mortgage broker help here? Any final thoughts?
This is an area where a broker can deliver big benefits. High street lenders see tax returns and tick boxes. A broker who handles directors and self-employed people day in, day out will know which lenders to use based on your income.
We can often make the difference in getting you more borrowing, saving you time and finding a cheaper mortgage.
Key Takeaways:
- Company directors on PAYE who own 25% or more of the business are typically classified as self-employed by most lenders, leading to a more complex mortgage application process than for a standard employee.
- Lenders primarily assess income using three methods: salary plus dividends (most common), salary plus a share of net profit (if funds are retained in the business), or, in rare cases, just the salary.
- It is possible to get a mortgage with only one year’s accounts, but this limits the choice of lenders and may require a clean trading history, strong figures, and a higher deposit.
- A key challenge is the tension between minimising tax (by maximising profit in the business) and satisfying lenders who want to see income coming out; however, some lenders will use a director’s share of the net profit toward income calculation.
- Engaging a mortgage broker is highly advantageous, as they can find lenders who offer better borrowing terms, save time, and secure a cheaper mortgage compared to high street banks.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
For specialist tax advice, please refer to an accountant or tax specialist.