Some UK lenders don’t allow business owners or sole traders to use their net profits as proof of income but with the help of a mortgage broker, you can quickly find the ones that do.
Usually, though not always, the higher your income from self-employment, the more a bank or lender will let you borrow on a mortgage. If your net profit is higher than your salary plus dividends, you may be able to use that higher figure to borrow more money, depending on your other circumstances.
How to get a self-employed net profit mortgage
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Am I eligible to get a mortgage using my retained net profits?
Specialist lenders can calculate a mortgage based on retained profits available to you if you’re a:
How do lenders calculate how much I can borrow from business income?
Most lenders look at personal income instead of business income when calculating how much they’ll provide for a mortgage but there are lenders that specialise in retained profit mortgages. They look at your tax accounts (usually from the last 2-3 years) to verify that you’ve earned the amount of profit that you say you have.
They’ll also need other evidence to confirm your:
Registered business address
Usually, a lower credit score indicates a riskier borrower and that can result in a smaller loan. That’s not always the case and every lender has their own criteria that they use to assess affordability, so if you’re worried that your credit score might stop you from borrowing the amount you need, ask a broker at The Mortgage Hut to check your eligibility and show you the lenders that can approve you for the highest amount, while still being affordable for your circumstances.
Lenders that accept retained business profits usually work out your affordability by calculating the total amount of your net profit, then multiplying that amount by 4x - 5x.
Example of a retained profit mortgage
If your business had retained profits that averaged at £100,000 over the last 3 tax years, a lender might multiply that by 4 and allow you to borrow a total mortgage amount of £400,000.
However, some lenders might take the highest figure over the last 3 tax years, rather than calculate the average net profit and this could allow you to borrow more. So, if the highest amount of profit earned over the last 3 years is £120,000 and they multiplied that figure by 4, you could borrow as much as £480,000.
Every lender is different and while one might look at your tax returns from the past 3 years, another might only require net profit figures from the last 2, or even 1 year. Some lenders apply higher income multiples too, so rather than multiply your profits by 4, they may multiply by 5. Usually, to qualify for lenders with higher income multiples, borrowers need to prove impeccable affordability, so it can be a good idea to keep your credit report up to date and avoid making late payments or worse, missing payments altogether.
I’m in a shared partnership, how can I use my retained profits to get a mortgage?
Lots of businesses have more than one company director and the niche lenders that accept retained profits as income for a mortgage can take this into consideration when calculating how much you can borrow. Usually, they’ll look at the amount of shares you own in the business as a percentage and use that to calculate your share of the net profit. That figure can then be used to work out how much you can borrow as an individual.
Example of how much you could borrow as a shared partner
If you’re a director and 50% shareholder of a limited company with a net profit of £500,000, and you draw a salary of £11,000 per year plus dividends of £40,000 over the last three years, you would be looking at one of two scenarios:
A typical lender would consider your income to be £51,000 per year. Lenders then multiply this figure by four or five times to work out your affordability, so the maximum you will be able to borrow would be £255,000.
A specialist lender would take into account the retained profit within the business, and so your affordability will be based on a minimum of £250,000, which, when multiplied, would mean you could borrow a minimum of £1,000,000!
How can I use my retained profits from my BTL business to get a mortgage?
Some lenders do allow landlords to use their profits from their rental income as proof of income. This income needs to be evidenced though and most lenders won’t accept just looking at your bank statements to see proof of profit. Instead, they’ll require up to 3 years of tax accounts, though some accept 2 and a handful will consider accepting just a year's worth of SA302 accounts when signed off by a chartered accountant.
Working with a mortgage broker might be able to help you find a relevant lender. Searching online can be a good place to start when looking for a bank or mortgage lender but because a retained profit mortgage is quite a niche product, you may find it difficult to find one without the help of a professional. Specialist lenders don’t always appear in online searches or comparison tables and you might not recognise their name if you’re unfamiliar with niche lending.
A mortgage broker has access to an online database of multiple lenders across the UK and can quickly highlight the ones that are more likely to approve you, as well as which ones have the best overall deals.
Check your eligibility for a mortgage using retained profits
Our mortgage brokers have close relationships with specialist lenders so they know which ones will look at your situation on a case-by-case basis rather than an automated system. Looking at your circumstances as a human rather than from the view of a computer can help specialist lenders make a more informed decision and that can sometimes help you get approved for a mortgage that other lenders would reject.
Why use The Mortgage Hut?
We have access to over 90 lenders across the UK, not just the big highstreet names.
We know what lenders look for when assessing a loan and can prepare your application for you to put you in the best position to apply.
We’re real people and know how important it is to get approved for the amount you need.
We won’t turn you away because of bad credit or a complicated situation like a complex income - that’s our specialty.
We’ve earned thousands of positive reviews from people we’ve helped find a mortgage for. They believe in us because we believed in them!
FAQs for mortgages using retained net profits
How much deposit do you need for a net profit mortgage?
The amount of deposit you’ll need will vary between lenders but it’s also worth noting that if you pose a greater risk to a lender for loss i.e. you have bad credit so you’re a riskier borrower, you will likely need a larger deposit.
There are lenders that have low deposit requirements, from between 5-10% of the total property’s value, however, these are usually offered to people who can prove they have a good record of repaying loans on time and in full. Your level of income as well as whether it has fluctuated over the last 1-3 years, can also affect how much deposit you’ll need.
Having a larger deposit can result in a cheaper mortgage because you’re borrowing less and this may allow you to qualify for deals with lower interest rates. A 15%+ deposit would be deemed as a healthy deposit by more lenders versus a 5% deposit but don’t get disheartened if you’re not in a position to put down such a large chunk.
The Mortgage Hut has brokers that specialise in low deposit mortgages for self-employed workers and business owners, so get in touch and find out what your options are.
Can I borrow more using retained profits rather than my salary plus dividends?
In many cases yes. Lots of business owners pay themselves a salary plus dividends for tax purposes however, often the profits from that business are a larger figure that give a better representation of how much money they have access to. Using retained profits can therefore allow you to apply for a bigger mortgage.
For example, if your business net profit was £200,000 but your dividends were £25,000 and your salary was £8,000, most lenders would calculate your annual income as £33,000. However, if you can get a mortgage with a specialist lender who will take into account your retained profits, you could get a mortgage based on your £200,000 net profit figure. Most lenders would calculate this by 4x-5x, meaning you could borrow as much as £1,000,000 in comparison with just £165,000.