Remortgage With Dividends and Salary

How Do Lenders Assess Dividends and Salary for a Remortgage?

When you apply to remortgage and your income comes from a mix of salary and dividends, the way a lender assesses your earnings can vary considerably. Understanding these differences is crucial because the same applicant can be offered dramatically different borrowing amounts depending on which lender they approach.

The most common approach used by high street lenders is to add together your PAYE salary and your dividend payments as declared on your SA302 tax calculations or tax return. This combined figure is then used as your annual income for affordability purposes. Most of these lenders will look at two or three years of income and take an average, though some will use the latest year if your income is rising.

A second approach, used by certain specialist and challenger lenders, considers your salary plus your share of the company's net profit rather than just the dividends you have actually drawn. This can be significantly more advantageous if you retain profits within the company for tax planning or business development purposes.

For example, if your limited company made a net profit of 120,000 pounds and you only drew 60,000 pounds in dividends plus a salary of 12,570 pounds, a lender using the first approach would assess your income at 72,570 pounds. A lender using the second approach might assess your income at 132,570 pounds, potentially allowing you to borrow considerably more.

Some lenders also consider retained profits from previous years that are sitting in the company as reserves. This can further increase your assessed income and borrowing capacity. However, these lenders are typically found through specialist mortgage brokers rather than on the high street.

It is worth noting that lenders will still apply standard affordability checks regardless of which income assessment method they use. Your committed expenditure, existing debts and lifestyle costs will all be factored into the final lending decision alongside your assessed income.

What Documents Do You Need for a Dividend and Salary Remortgage?

Applying for a remortgage when your income includes dividends requires more documentation than a straightforward employed application. Being well-prepared with the right paperwork can speed up the process considerably and avoid frustrating delays.

Most lenders will require the following documentation:

• SA302 tax calculations - Covering the last two to three tax years, showing your total income including salary and dividends
• Tax year overviews - Corresponding to each SA302, downloadable from your HMRC online account
• Company accounts - Full statutory accounts for your limited company for the last two to three years, ideally prepared by a chartered or certified accountant
• CT600 corporation tax returns - These confirm the company's taxable profits and can verify the figures in your accounts
• Dividend vouchers or board minutes - Evidence of dividends declared and paid to you as a shareholder
• Business bank statements - Three to six months of company bank statements showing the financial health of the business
• Personal bank statements - Three to six months showing dividend payments received and regular personal expenditure
• Payslips - If you draw a PAYE salary, your most recent three months of payslips
• Proof of identity and address - Standard documents such as passport, driving licence and recent utility bills

If your company has more than one director or shareholder, you will also need to clearly demonstrate your percentage shareholding and your entitlement to the dividends you have declared. Companies House records and your articles of association may be requested to verify this.

Lenders who assess income based on net profit rather than dividends drawn will pay particular attention to the company accounts. Having clean, well-prepared accounts from a recognised accountancy practice can make a significant difference to how your application is viewed.

It is sensible to gather all these documents before you begin the application process. Your accountant should be able to provide most of the company-related paperwork, while your personal tax documents can be accessed through your HMRC online gateway.

Challenges of Remortgaging With Dividend Income

While remortgaging with dividend and salary income is entirely achievable, there are several challenges that company directors commonly encounter during the process. Being aware of these in advance allows you to plan around them and present the strongest possible application.

Low declared income for tax efficiency. Many company directors deliberately keep their salary low and manage their dividend payments to minimise their overall tax liability. While this is perfectly legitimate and sensible from a tax perspective, it can restrict how much you are able to borrow if the lender only considers declared income. If you have been drawing minimal dividends while retaining significant profits in the company, you may need to seek out a lender who considers net profit rather than dividends drawn.

Irregular dividend payments. Unlike a regular salary, dividends are often paid at irregular intervals or in varying amounts depending on the company's cash flow and profitability. Some lenders prefer to see a consistent pattern of dividend payments, while others are comfortable with lump sum or irregular distributions provided the overall annual figure is supported by the accounts.

Multiple income sources. If you are a director of more than one company, or if you have other income sources alongside your dividends and salary, the assessment can become more complex. Each income source may need to be evidenced separately, and not all lenders will accept income from multiple companies.

Recent incorporation. If you have recently moved from being a sole trader to a limited company structure, some lenders may have difficulty assessing your income if you do not yet have two years of company accounts. However, some will consider your sole trader accounts alongside your limited company accounts to build a fuller picture of your earning history.

Dividends exceeding profits. If you have drawn dividends that exceed the company's profits in any year, this can raise concerns with lenders as it may suggest the business is not generating sufficient income to support the level of drawings. Ensuring your dividend payments are always covered by available profits is important for lending purposes.

Despite these challenges, thousands of company directors successfully remortgage every year. The key is working with a broker who understands how limited company income works and can match you with the most suitable lender for your specific circumstances.

How to Maximise Your Borrowing With Dividends and Salary

There are several practical steps you can take to maximise your borrowing potential when your income comes from dividends and salary. With careful planning, you can significantly improve the amount a lender is willing to offer you.

Choose the right lender. This is perhaps the single most important factor. The difference in assessed income between a lender who only considers salary plus dividends and one who uses salary plus net profit can be tens of thousands of pounds. A specialist broker can identify which lenders offer the most favourable assessment for your particular situation.

Time your application carefully. If your most recent year of accounts shows higher profits than previous years, it may be worth ensuring those accounts are finalised before you apply. Some lenders will use the latest year's figure rather than an average, which could boost your borrowing capacity.

Consider your dividend strategy. If you are planning to remortgage in the near future, it may be worth adjusting your dividend payment pattern. Drawing regular monthly or quarterly dividends rather than a single annual lump sum can make your income look more stable and predictable to lenders.

Keep company accounts clean. Well-maintained accounts with clear profit and loss statements make it easier for lenders to assess your income. Avoid mixing personal and business expenses within the company, and ensure all transactions are properly categorised and documented.

Build your equity position. The more equity you have in your property, the better the rates and the more flexible the lending criteria. Aiming for a loan-to-value ratio below 75 per cent will generally give you access to the most competitive deals in the market.

Address any credit issues. Check your personal credit report well in advance and deal with any errors or outstanding issues. Even small problems on your credit file can complicate an already complex application. Pay down revolving credit balances and avoid making new credit applications in the months before you remortgage.

Prepare a clear income summary. Working with your accountant to prepare a concise summary of your income over the last two to three years, clearly showing salary, dividends and retained profits, can help the lender understand your financial position quickly and reduce the likelihood of delays.

Using a Broker for Dividend and Salary Remortgages

When your income is structured as a combination of dividends and salary, using a specialist mortgage broker is not just helpful but arguably essential. The variation in how lenders assess this type of income means that approaching the wrong lender could result in either a decline or a significantly lower offer than you could achieve elsewhere.

A good broker will understand the nuances of limited company income and will know which lenders use salary plus dividends, which consider salary plus net profit, and which factor in retained profits. This knowledge can make a substantial difference to the outcome of your application.

Brokers also have access to lenders that are not available directly to the public. Many specialist and challenger lenders who offer favourable terms for company directors only accept applications through intermediaries. Without a broker, you would not be able to access these products at all.

When selecting a broker, look for one who is authorised and regulated by the Financial Conduct Authority and has specific experience with limited company director mortgages. Ask them to explain how different lenders would assess your income and what borrowing amounts each approach might yield.

Many brokers offer a free initial consultation where they can review your circumstances and provide an indication of what deals are available. This allows you to understand your options before committing to a formal application and avoids unnecessary credit searches that could affect your score.

The cost of using a broker, whether they charge a fee or are paid by commission from the lender, is typically outweighed by the benefits of accessing the right product at the best rate. For company directors with dividend and salary income, the right broker can mean the difference between a rejected application and a competitive deal.