For company directors, dividends can have an impact on your mortgage application. In this blog, we look at how and in what way lenders assess income from dividends for your mortgage application.
How mortgage lenders assess income from dividends
Most mortgage lenders require two to three years’ worth of dividend income to count it as part of a borrower’s overall income.
It’s possible to find lenders who will consider just one year’s dividend income in calculating your mortgage affordability, but this is rare. You’d have to submit that year’s Limited Company accounts or an accountant’s certificate and be aware that the mortgage terms offered may not be as favourable.
Most lenders also consider the following to determine overall mortgage affordability for company directors:
- PAYE salary
- Dividend payments
- Net profit after corporation tax
- Gross profit – where a company retains profits in the business, some lenders will include this
Some lenders will include other income sources plus salary and dividends. For example:
- Bonuses and commissions
- Investment income
- Rental income
- Child maintenance payments
The difference between salary and dividend income for mortgage purposes
Lenders typically see a salary as a stable income. Borrowers earning steady wages regularly are generally considered lower risk.
As dividends are a share of a company’s net profit, they may fluctuate. This isn’t necessarily as favourable for a mortgage lender, so often they like to see proof of salary and dividends over a two-to-three-year period.
