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MortgageOS
Income Guide

Your Profit Dropped Last Year: What It Means for Your Mortgage

A declining income doesn't have to derail your mortgage plans. Here's how different lenders treat income dips and what strategies can help.

Updated January 202610 min read

How Declining Income Affects Borrowing

Self-employed income naturally fluctuates. But when your most recent year shows lower profit than previous years, mortgage lenders become more cautious.

The lender's concern

Lenders worry that a declining trend might continue. Their affordability calculations need to account for the possibility that your income might be lower in future — when you're making mortgage payments.

The Scale of Impact

Minor Drop (0-15%)

Usually acceptable. Averaging methods help. Most lenders proceed normally.

Moderate Drop (15-30%)

More scrutiny. May need to explain. Some lenders will use lower figure only.

Significant Drop (30%+)

Expect challenges. Limited lender options. May need to wait for recovery.

How Different Lenders Respond

Average of 2-3 Years

Lenders using averages will smooth out your dip. If your previous years were strong, the average may still be acceptable.

Example: £70k → £65k → £50k = Average of £61,667

Lenders: Barclays, NatWest, Lloyds, most building societies

Lower of Last 2 Years

The most conservative approach. If your latest year dipped, that's what they'll use. Penalizes declining income heavily.

Example: £65k → £50k = Uses £50k

Lenders: HSBC, some conservative building societies

Latest Year Only

Normally favorable for growing income, but works against you with a decline. Uses your weakest figure.

Example: £70k → £65k → £50k = Uses £50k

Lenders: Halifax (for declining), some specialists

Best approach for declining income

Seek lenders that use averaging methods. An average of £61,667 gives you ~£277k borrowing, versus ~£225k if they use your latest year of £50k alone.

Strategies to Maximize Borrowing

1. Apply Before New Figures Are Required

If your weak year hasn't been filed yet, consider applying before it becomes your "latest year." This works best if you can complete the purchase before your next tax year is required.

2. Seek Averaging Lenders

Lenders using 2-3 year averages will be more favorable. Your stronger historical years help offset the recent dip.

3. Prepare a Strong Explanation

If you can explain the dip was temporary or one-off, some lenders will view it more favorably. Document:

  • What caused the drop (lost major client, illness, market conditions)
  • Why it won't recur
  • Evidence of recovery (new contracts, improved recent months)

4. Consider Manual Underwriting

Building societies with manual underwriters can consider context that automated systems miss. They may view a one-off dip more favorably if the overall picture is strong.

5. Increase Your Deposit

A larger deposit (lower LTV) opens more lender options and can compensate for income concerns. Moving from 85% to 75% LTV significantly expands your choices.

When to Delay Your Application

Sometimes the best strategy is to wait. Consider delaying if:

Consider Waiting If:

  • Your income is already recovering
  • Next year's figures will be stronger
  • The drop was 30%+ and unexplainable
  • You have no urgent timeline

Proceed Now If:

  • You can explain the drop clearly
  • Your averaged income still supports needs
  • Recovery is uncertain
  • You need to buy for personal reasons

See your options with current income

Get personalized lender recommendations based on your actual income trajectory.

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Frequently asked questions