Retained Profit Mortgage
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Retained Profit Mortgage
James Best explains how company directors can use retained profit for a mortgage.
What is a retained profits mortgage and how does it work?
It’s about the way that the mortgage lender will interpret the income they use to assess affordability on your application.
The traditional method for income includes director’s salary and dividends, taken from the business’s income each company year. But with a retained profit approach, lenders can instead take the director’s share of profit, along with any salary taken.
If there are multiple directors in a company, it comes down to what that director’s share of the company profits are – plus their salary. Depending on how the company is set up and each director’s income from the business, there can be advantages to this route.
Am I eligible if I keep profits in my business instead of drawing them as income?
Absolutely. This is exactly what this type of income assessment is addressing. It’s for circumstances where directors only draw what is needed from the business and the rest is left within the company.
It addresses the situation where as director of your own company, you take out a set amount, but your company makes much more profit – and you could choose to draw that if you needed to.
Some mortgage lenders use that retained profit, because they recognise that you could take it out to support a mortgage and your bills if you needed to.
It’s a unique way that lenders are making mortgages more accessible to the self-employed – and in this instance, company directors.
How do lenders assess retained profits when calculating affordability?
Lenders would use the director’s share of the profits as shown on the accounts. They often take an average of the last two years, if the figures are consistent or slightly increasing.
If profits in the latest year are slightly lower, but the lender is comfortable with the business performance, they may take the most recent year’s profits. They will look at the director’s share of that and add on the salary as well.
Do I need an accountant’s certificate to prove retained profits?
Not always. Having an accountant’s certificate can be helpful, but it’s not always needed. Some lenders have specialist underwriters that know how to interpret accounts.
But an accountant’s certificate can be really useful – it’s an additional source of information from a regulated professional. It gives insights into what the business is doing and how profits are going. It basically gives the underwriter more information.
Some mortgage lenders rely specifically on accountant’s certificates and don’t even look at the books. But you don’t necessarily need one, because other lenders are happy with the company accounts.
Speak To an Expert
Come on in and be quite forward with what you’re after – just be very honest with your mortgage broker. It’s good to make sure that we know absolutely everything about you. That way we can’t be blindsided by a lender. An open book policy is very good when coming to see your mortgage broker.
Will all lenders accept retained profits for mortgages?
No, sadly, not all of them. Many of them still rely on the director’s salary and dividends from the business. However, we’ve noticed that more lenders are moving into that space.
Hopefully more will come on board, and that will mean there’s more choice for our clients – and better chances for us in getting them something suitable.
Can retained profits be used alongside salary and dividends for affordability?
Partially – salary, yes, because a director’s salary is taken out as an expense before the company profits are calculated. So you can have the director’s salary plus their share of the profits, but we can’t include dividends. That’s because dividends are taken out of the company profits.
Essentially, the profits need to be higher than the dividends taken out. Using profit and dividends would be counting the same money twice.
How many years of business accounts do I need to show?
The longer you’ve been trading, the better your prospects are, because there’s more history.
As a general rule, you need two years or more, but in the past I’ve had lenders accept clients with one year’s accounts. It tends to be where the client’s circumstances and experience in that industry give the lender confidence.
Get in touch if you’re coming up to the end of your first year, because under certain circumstances, lenders can accept shorter periods of accounts.
Do lenders look at net profit, gross profit or both?
Usually it’s one or the other. The majority of lenders in this space will look at the net profit – the company profits after tax and all the deductions.
However, a few lenders will look at the gross profit before any tax is deducted. At the time of recording in September, not many look at it this way – but of course the benefit is that the income figure will be higher than with net profit.
For clients looking to borrow as much as they can, it can be beneficial to look at these lenders that accept gross profit plus salary. In effect, it’s similar to how they look at an employed person’s gross salary, before they pay tax.
How does using retained profits affect the Loan to Value? How much can I borrow?
Like most mortgages, the better the Loan to Value, the lower the risk is to the mortgage lender. That often means you can borrow more – by putting a higher deposit in, you gain more flexibility.
That’s the case whether you’re employed or self-employed. If you do have a good size deposit, the chances are you could borrow more than with a smaller amount.
Are interest rates or fees higher for retained profit mortgages compared to standard self-employed mortgages?
No, the good news is that on the whole the rates are pretty much the same for both. As we speak today in September 2025, there are certain self-employed first-time buyer schemes which are slightly different from the rest of the rates out there.
But on the whole, the majority of rates and mortgages are accessible to directors using retained profit. Someone that’s employed or a sole trader should also get the same terms on the mortgages you’re eligible for.
You’ve demonstrated how a mortgage broker can help – is there anything else to add?
A mortgage broker will work to understand your situation and then portray your circumstances to the right lender in the most positive light. That will significantly improve your chances of getting your mortgage over the line.
A broker has knowledge of and access to all the lenders that are comfortable with these cases. That ensures you’re proceeding with the most suitable terms with the right lender.
The alternative could be going to your own bank or building society, only to find that they don’t do this – and you’ll get a much lower borrowing figure from them.
An expert in the field can really help you out, as this can be a complex situation.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
For specialist tax advice, please refer to an accountant or tax specialist.