Mortgage Advice for Directors Using Dividends
If you run your own limited company, you might choose to pay yourself a mix of salary and dividends for tax efficiency. While this approach can be great for reducing your tax bill, you may wonder how it affects your mortgage prospects. The good news is that many mortgage lenders do accept dividends as part of your income, but each lender has its own way of assessing them.
By understanding how lenders view dividends and how to present your income in the best possible light, you can improve your chances of getting the mortgage you need.
At Kerr & Watson, we specialise in helping company directors secure mortgages that reflect their true earnings, not just their basic salary.
What is dividend income?
Dividend income is a share of your company’s profits that you take as a shareholder. For many directors, dividends form a significant part of total earnings alongside a base salary. They’re not subject to national insurance contributions, making them a tax-efficient way to pay yourself.
Directors often set their salary at or below the basic tax rate threshold and take the rest as dividends. This is perfectly legitimate and common among business owners, but it does mean your payslips may not tell the full story of your income, which is where some lenders can be cautious needing more history for company owners.
How lenders view dividend income
The way dividend income is treated varies from one mortgage provider to another. Some lenders will happily take both salary and dividends into account in full when calculating what you can borrow. Others may only consider salary, or they may take salary plus net profit from the business rather than dividends.
Many lenders will average your income over the last two. If your income is stable or increasing, they might use the average figure. If it’s decreasing, they are likely to use the most recent year’s income, which can reduce your borrowing power. Some will even use just the one year of trading if you only have this amount of history.
Specialist lenders may be more flexible in how they assess company directors. A mortgage broker like Kerr & Watson can help match you with lenders who are most likely to recognise your full earning potential.
Find out Your Options
Documents you’ll need
When applying for a mortgage using dividends, you can expect to provide a range of documents to show both your personal income and the financial health of your business. These typically include:
- SA302 tax calculations for the last two or three years
- Tax Year Overviews from HMRC for the same period
- Full company accounts, prepared by a qualified accountant
- Business bank statements (usually the last three to six months)
- Personal bank statements to confirm income and spending patterns
Having up-to-date and well-presented records is key. It reassures lenders that your income is sustainable and that your business is well-managed.
How long you should have been taking dividends
Most lenders prefer to see at least two years of dividend income to include it in your mortgage assessment. Some may work with just one year if you can provide strong evidence, such as solid company accounts or previous experience in the same industry.
If you have less than two years of accounts, your mortgage options may be more limited, but a broker can help identify lenders willing to consider shorter trading histories.
Using retained profits to boost borrowing power
If you take a low salary and modest dividends but your company retains significant profits, some lenders will consider salary plus net profit instead of salary plus dividends. This can make a big difference to how much you can borrow, especially if you’ve kept money in the business for growth or tax planning reasons.
For example, if you draw £200,000 in salary and dividends but your company retains £80,000 in profit, certain lenders may assess your income as £100,000 rather than just £20,000.
Other income that may be considered
In addition to salary and dividends, lenders may also consider:
- Rental income from property investments
- Bonuses or commissions
- Investment income from shares or savings
- Child maintenance payments
- Certain benefits or allowances, depending on the lender
Including all eligible income can help improve your affordability assessment.
How to maximise your chances of approval
When you’re applying for a mortgage using dividends, preparation makes a big difference. Here are some practical steps you can take:
- Keep your accounts and tax returns up to date, ideally prepared by an accountant
- Show consistent or increasing income over the last two or three years
- Maintain a strong credit score by paying bills on time and managing debt
- Work with a broker who understands how to present your income to lenders effectively
At Kerr & Watson, we regularly help company directors position their applications and can help guide you on the necessary documents to gather for your case, speaking with your accountant if needed.
What if you have bad credit?
It can still possible to get a mortgage as a company director with bad credit, but you may face higher interest rates, need a larger deposit, or be asked for more detailed documentation. Some specialist lenders are more open to applicants with past credit issues, especially if your business finances are strong.
A broker can help you identify these lenders and manage the application to increase your chances of approval.
Why work with Kerr & Watson?
Not all lenders take the same approach to dividend income, which is why going directly to your bank might not get you the best result. At Kerr & Watson, we:
- Understand the unique challenges company directors face when applying for a mortgage
- Have access to lenders who take a more flexible view of income, including retained profits
- Save you time by identifying the most suitable lenders before you apply
- Can often sometimes exclusive rates and products not available directly to borrowers
Our goal is to secure a mortgage that reflects your true earning power should you wish to raise the maximum available.
Conclusion
Getting a mortgage using dividends is entirely possible, but the outcome depends on approaching the right lender with the right evidence. By preparing your accounts, understanding how different lenders assess income, and working with a broker who knows the market, you can significantly improve your chances of success.
If you’re a company director looking to buy, remortgage, or invest, Kerr & Watson can guide you through the process from start to finish. We’ll make sure your application shows your income in the best light and matches you with a lender who values your full earnings.
Contact Kerr & Watson today to discuss your options and take the first step towards securing the mortgage you deserve.
