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 a legal director of a limited company who receives their salary or a portion of their income through Pay As You Earn (PAYE) – in the same way as an employee.

They may also receive dividends from company profits. They would also have responsibility for running the company, but they are treated like an employee for income purposes.

The key point is that lenders see PAYE income as more stable than self-employed dividends, but your total remuneration will likely include a combination of salary and dividends.

Getting a mortgage in this situation is slightly less difficult than as a fully self-employed director. However, income verification, affordability assessments and different lender policies can make it more tricky.

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

Yes, it’s possible. Most lenders will ask for two to three years’ accounts from directors to verify income stability, especially if dividends form a significant part of that income.

Salary via PAYE is usually easier. Lenders may accept a year of payslips and a P60. For dividends, lenders usually prefer a two to three year history. One year might be acceptable for certain lenders, but often at a lower percentage.

So, if you take a reasonable PAYE salary instead, that can cover the mortgage repayment, your chances will be better with one year of accounts.

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

Lenders usually treat your PAYE income as regular employee income. It’s easier and faster to verify and it’s more stable. Fewer documents are usually required.

Dividends for some lenders may be ignored or partially included. Limited company directors are usually self-employed, and lenders might require that company’s accounts to verify the stability of the company as well as the income of the individual.

They may also ask for dividend history, SA302s, tax calculations and tax year overviews. Affordability calculations often include only a proportion of the dividends – from 50% to 100%, depending on the lender. They also might need a larger deposit.

To summarise, for PAYE directors, it’s simpler, faster and you’re more likely to be accepted.
Meanwhile, limited company directors with dividends and income will usually require more paperwork, could have reduced lender options and may face stricter affordability rules.

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

Lenders will assess your earned salary as verified by three months’ payslips. Regardless of the type of borrower you are, bank statements will also be required to verify your income.

Your P60 may be needed, to show the full year’s income and tax. Dividends are usually counted at 100% towards mortgage affordability, but it’s not always the case – it can be between 50% and 100%.

If you’re also a landlord, lenders will accept the rental income you receive, as well as any bonuses or commission.

What documents do I need to prepare?

When you’re an employed director, they’re going to look at your personal income, but also the income of the limited company. They might not use this for affordability, but if a lender visits Companies House or looks at the accounts and sees a downward spiral of profit, it could cause concern.

If profits are declining over the past three years, the lender might reject your application on the basis of the stability of the company. But sometimes this can be explained. Your accountant could write a letter or a statement explaining why that’s happened.

So even though a director’s salary meets affordability, we have sometimes found that company accounts showing falling profits can scupper the application.

What if my payslips are not considered as PAYE income?

An example might be where you’re a company director who doesn’t take a salary at all – so there’s no PAYE element to it. You may only be paid in dividends or even contractor invoices.

These might be deemed inconsistent or irregular by a lender and not be accepted. But doesn’t mean you’re not going to get the mortgage – it just means they’ll treat you as fully self-employed. You then need to get your SA302s and tax year overviews rather than using your PAYE salary.