Can you get a mortgage using retained profits?

Being self-employed doesn’t necessarily make getting a mortgage more difficult. However, lenders can assess self-employed income in different ways, particularly where income is derived from a limited company.

Choosing a lender whose criteria fit your circumstances can therefore be important.

For limited company directors, one of the most significant differences between lenders is how they treat company profit. Some will look only at the salary and dividends you draw personally, whilst others may consider your share of the company’s profit, including profit that has been retained within the business.

Understanding these approaches, and matching your application to the right lender, can make a meaningful difference to what you are able to borrow.

How Lenders Assess Limited Company Directors

Lenders use different approaches when assessing limited company directors.

Some use salary and dividends, whilst others may use salary plus the applicant’s share of the company’s net profit. Where net profit is used, each lender will have its own criteria around whether profits are assessed before or after corporation tax, how figures are averaged, often over the last two years, and what proportion of profit can be taken into account.

It is important to understand that these are alternative methods of assessing income.

A lender that uses net profit does not simply add retained profit on top of salary and dividends. Instead, it uses your share of the company’s net profit in place of dividends, so the assessment is based on your salary plus your share of net profit rather than salary plus dividends. Which method produces the stronger result will depend on how you draw income from your business.

Read more: Mortgages for company directors

Retained Profits: Whose Profits Are They?

Some lenders will consider a limited company director’s share of the company’s net profit when assessing mortgage affordability, even where those profits have been retained within the business rather than paid out as dividends.

The amount considered will depend on the applicant’s shareholding and the lender’s individual criteria.

Some lenders will only use the net profit method where the applicant holds a minimum shareholding, so the size of your stake can affect both whether this approach is available and how much profit is taken into account.

This is particularly relevant for directors who deliberately leave profit in the business for commercial reasons, such as reinvestment, cash flow or tax planning.

Under a salary and dividends assessment, retained profit would not usually be counted, because it has not been drawn personally. Under a net profit assessment, your share of that profit can be recognised, which is why the choice of lender matters so much for directors in this position.

Retained Profits vs Shareholders’ Funds

It is important not to confuse retained profits with shareholders’ funds.

Shareholders’ funds are an equity figure shown on the company’s balance sheet and can include share capital, retained profits and other reserves. They do not represent income and should not be treated as the amount a lender will use when assessing mortgage affordability. Where a lender accepts company profits, it will generally be the applicant’s share of net profit, assessed in line with that lender’s specific criteria.

How This Affects What You Can Borrow

Where a lender is able to take a greater proportion of company profit into account, borrowing potential may be higher than with a lender that assesses salary and dividends alone. However, the amount available will always depend on the lender’s full affordability assessment and any applicable lending limits.

Because the difference between these approaches can be substantial, it is worth reviewing your options carefully rather than assuming every lender will reach the same figure.

The most appropriate lender is the one whose method of assessing income best reflects the way your business is structured and the way you draw your income.

Common Myths About Self-Employed Mortgages

There are some persistent misconceptions about borrowing as a self-employed applicant. Two of the most common are worth addressing directly:

1. Being self-employed doesn’t automatically mean you need a larger deposit or have access to less competitive mortgage rates. The most suitable lender will depend on your income structure, business circumstances and overall application.
2. Retained profit is not automatically ignored. Whilst some lenders will only consider salary and dividends, others can take your share of company profit into account, so it is worth seeking advice before assuming your options are limited.