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MortgageOS
Director Guide

Director's Loans and Mortgages

How your director's loan account affects your mortgage application, and what to do if you have an overdrawn balance.

Updated January 20268 min read

What is a Director's Loan Account?

A director's loan account (DLA) is an accounting record of the financial relationship between you (as a director) and your limited company. It tracks money moving between you personally and the company.

DLA in Credit

The company owes you money.

This happens when you've lent money to the company (e.g., startup capital) or left dividends/salary unpaid.

Generally not a problem for mortgages

DLA Overdrawn

You owe the company money.

This happens when you've taken more from the company than you're entitled to via salary/dividends.

Can cause issues with mortgage applications

Common scenario

Overdrawn DLAs often occur when directors take money from the company throughout the year, expecting to cover it with dividends, but don't formally declare dividends until year-end or later.

How It Affects Your Mortgage

Lenders review your company accounts as part of assessing your income. The director's loan account balance appears in these accounts and can raise questions or concerns.

What Lenders Look For

  • Direction of balance: Overdrawn (you owe company) vs in credit (company owes you)
  • Size of balance: Relative to your income and company size
  • Trend: Is it growing, stable, or being repaid?
  • Repayment plan: Is there a clear path to clearing an overdrawn balance?

Why Overdrawn DLAs Concern Lenders

  1. 1.
    It's a debt — An overdrawn DLA is technically a loan from your company to you, which affects your overall debt position.
  2. 2.
    Cash flow concerns — It suggests you may be spending more than your declared income, which raises affordability questions.
  3. 3.
    Tax implications — Overdrawn DLAs have tax consequences (benefit in kind, Section 455 tax), suggesting possible financial pressure.

Overdrawn DLA: The Problem

How It's Treated

Different lenders handle overdrawn DLAs differently:

Added to affordability calculations

Some lenders treat the repayment obligation like any other debt, reducing your borrowing capacity accordingly.

Questioned at underwriting

Underwriters may ask for an explanation and repayment plan, which can delay or complicate your application.

Automatic decline

Some lenders have strict policies against significant overdrawn DLAs, leading to automatic rejection regardless of other factors.

The worst case

A large, unexplained overdrawn DLA with no repayment plan can result in mortgage decline, even if your income would otherwise support the borrowing.

Solutions

Before You Apply

Option 1: Clear the Balance

The cleanest solution. Ideally, do this before your accounting year-end so the cleared position appears in your accounts.

How: Declare dividends (if you have distributable reserves), vote yourself a bonus, or repay from personal funds.

Option 2: Reduce the Balance

If you can't fully clear it, reduce it as much as possible. A smaller balance is less concerning to lenders.

Option 3: Document a Repayment Plan

Have your accountant prepare a formal repayment plan showing how and when the balance will be cleared. This demonstrates you're managing it responsibly.

Option 4: Choose the Right Lender

Some lenders are more understanding of DLAs than others. A broker can help identify lenders whose criteria are more flexible on this issue.

Prevention for the Future

  • Declare dividends promptly — Don't let large informal withdrawals accumulate
  • Take regular salary — Even a small monthly salary reduces the need for drawings
  • Track the balance — Know your DLA position throughout the year
  • Clear before year-end — Ensure your accounts show a clean position

Concerned about your DLA?

Get advice on how your director's loan account might affect your mortgage options.

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Frequently asked questions