Is a Self-Employed Mortgage Based on Gross or Net Profit?

If you work for yourself, one worry comes up more than any other: will a mortgage lender look at everything my business turns over, or only what is left after tax?

The honest answer is that neither extreme is right, and understanding the middle ground is the key to getting the mortgage you deserve.

This guide to self-employed mortgages explains, in plain terms, exactly which figures lenders use, why net rather than gross income is what counts, and what you can do if your accounts do not tell the full story.

It also answers a question we are asked constantly: can you get a mortgage based on retained profit left inside your limited company?

Gross versus net: the difference that decides your mortgage

It helps to be precise, because these words get used loosely.

Gross means income before any deductions – your total turnover or total sales.

Net means what is left after allowable business costs and, depending on the figure, after tax. When a lender talks about your income, they mean a net figure.

They are not going to lend against money that was only ever passing through the business to cover expenses.

Which figures a self-employed mortgage lender actually uses

How your income is measured depends on how you trade. There are four common structures, and each is read slightly differently.

Sole traders and partnerships

If you are a sole trader or in a partnership, lenders look at your net profit – the figure on your tax calculation (often called the SA302) after allowable expenses. For a partnership, they use your share of the net profit. Most lenders average the last two years, though some will work from the latest year if your income is rising, and a few will consider a single year of trading.

Limited company directors

This is where the most confusion, and the most missed opportunity, tends to sit. If you run a limited company, you are legally separate from your business. Traditionally, lenders assess you on salary plus dividends drawn from the company. That works well if you pay yourself most of what the company earns.

Many directors leave profit in the company rather than drawing it all out.

If a lender only counts salary and dividends, your income can look lower than the business can support. A number of lenders will instead assess your share of the company’s profit. Most that use this approach look at profit after corporation tax, although some may consider profit before tax. Crucially, this is usually an alternative to salary and dividends, not an amount added on top.

Contractors

If you work on day-rate contracts, a number of lenders will assess you on your annualised contract rate rather than your accounts at all, which can be far more generous. CIS mortgages is a specialist niche in its own right and well worth asking about if it applies to you.

Can you get a mortgage based on retained profit?

Yes – with the right lender, and this is one of the most valuable things a self-employed borrower can know.

Retained profit is money your limited company has earned but kept in the business rather than paying out as salary or dividends. Directors do this for good reasons: to reinvest, to build a cash buffer, or simply to be tax-efficient by not drawing more than they need.

It is worth being clear that lenders approach this in two related but distinct ways.

Some assess your salary plus your share of the company’s net profit for the year (the profit-share route). Others will additionally consider accumulated retained profit held on the balance sheet from previous years. The two are often confused, but they are not the same thing, and lender criteria differ sharply on which they will use.

The problem is that many high-street lenders ignore company profit entirely.

They see only what you have personally drawn, so a director who leaves a large profit in the company to grow it can look like a low earner on paper, even though the business is thriving. That mismatch has held back countless capable borrowers.

Some lenders take a broader view. Instead of relying only on salary and dividends drawn, they assess your share of the company’s net profit – in most cases profit after corporation tax, though some may consider profit before tax.

Where the company-profit route is used, dividends are not usually added again, because they have already been paid from those profits.

Not every lender offers this, and criteria vary. Some want two years of accounts. Others will consider retained profit only where the business is stable and consistently profitable. This is where knowing the market makes a real difference.

Learn more: Can you get a mortgage using retained profits?

What lenders want to see from self-employed applicants

Whatever your structure, being well prepared makes everything smoother.

A lender will typically ask for some or all of the following.

• Two years of finalised accounts or tax calculations (SA302s) with the matching tax year overviews. Some lenders accept one year.
• Confirmation from your accountant – ideally a qualified one – if the lender asks for it.
• Recent business and personal bank statements, usually the last three months.
• Evidence that income is stable or growing rather than in decline.
• For company directors, a clear picture of salary, dividends and profit so the right assessment method can be applied.

What to do if your accounts do not tell the full story

Plenty of self-employed people have solid businesses that simply do not present neatly on paper – perhaps because you have only one year of accounts, your income varies, or you have reinvested heavily.

None of this needs to be a barrier. There are practical routes forward.

• Choose the lender that reads your figures correctly. The biggest difference often comes from matching your business structure to a lender whose criteria fit it, whether that means salary plus dividends or a suitable company-profit assessment.
• Time your application. If this year is stronger, some lenders will use the latest year rather than a two-year average.
• Get your accountant on side early. A clear reference and tidy figures remove doubt before it arises.
• Keep your credit profile clean. The same rules apply as for any borrower, and it gives lenders confidence.
• Consider a larger deposit if you can. More equity widens the range of lenders willing to be flexible on income.