A director’s mortgage is a type of property finance typically only available to Directors and Senior Managers in a business. The applicant can take out a mortgage on the value of their home to fund their own business’s capital expenditure or for investment purposes.
The loan amount would be equal to the equity that you hold in your home, which usually is 50% (however, this can be increased with specific lenders) of the value of your home. You can either make a lump sum payment or an overpayment on your mortgage to reduce the amount outstanding.
Requirements to get the directors mortgage
1. Directors package
With the package of the salary and benefits that a director receives, they can easily afford to pay back for their loan.
2. Directors’ Credit Report
To qualify for a director’s loan, you need to have a good credit history. If you don’t, you may get professional help from RightMortgageUK to guide you on the right path to take.
3. Directors’ Income
It is imperative to get the mortgage lender’s approval to ensure that you can repay it. It’s normal for directors’ mortgage lenders to ask for six months worth of payslips, bank statements, and employment contracts plus two years accounts or P&Ls, so they can get an idea of how your business is doing.
4. Directors’ Property Valuation
To be eligible for a director’s mortgage, you’ll need to ensure the property valuation is correct and reflects your home’s market value. For example, if it has been valued at £500,000 and you only want to borrow money against the value of £300,000 (because your equity is £200,000), we will have to ask for the property valuation to be reviewed.
5. Directors’ Cash Flow
When applying for a director’s mortgage, you need to estimate how much cash your business generates and show this to the lender. This way, they will compare it with your salary and check if their offer is reasonable for you. If not, they may ask for changes on what you can afford.
6. Directors Employer
When you apply for a directors’ mortgage, the lender will want to know how long you have been with them and if there is any chance that they can no longer employ you (you resign or are made redundant). To reassure the lender that this won’t happen, we may ask you to include another Director on your application who will be willing to act as a referee.
7. Directors’ Business Plan
When you apply for a directors’ mortgage, it’s also a good idea to include some business plans so the lender can see how your business is performing and if their offer will help improve its performance even more. We have found that including various financial forecasts in this plan can also help.
8. Directors’ Bank Statement
When you apply for a director’s mortgage, the lender will want to see enough money in your business bank account to cover all of your outgoings for six months. If it only has just six months’ worth of expenses, then this may not be enough for them to approve your application.
In a nutshell, to get the lender’s approval, you must provide all your documents with 100% accurate detail to avoid any last-minute surprises.