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MortgageOS
Income Guide

The Retained Profits Problem

Why tax-efficient Ltd company directors often can't borrow as much as they should — and how to find lenders that understand your real income.

Updated January 202610 min read

The Problem

You run a successful limited company that generates £100,000 in profit each year. But you're tax-savvy, so you take a small salary and modest dividends, leaving most profits in the company to defer higher-rate tax.

Then you try to get a mortgage.

The frustrating reality

Most lenders only count what you've extracted: your £12,570 salary plus perhaps £40,000 in dividends. They see you as earning £52,570, not £100,000. Your £60,000 of retained profits? Invisible.

What You Actually Made

£100,000

Company net profit

What Most Lenders See

£52,570

Salary + dividends only

Using a 4.5x income multiple:

  • Based on actual profit: Could borrow ~£450,000
  • Based on extraction only: Can borrow ~£237,000

That's a £213,000 difference — enough to be the difference between buying in your preferred area or not.

Why This Happens

Mortgage lending criteria developed primarily around employed applicants, where income equals salary. When self-employed lending expanded, many lenders simply adapted their employed criteria rather than truly understanding business income.

The Flawed Logic

The "salary + dividends" approach assumes that what you take out of the company is what you can afford to spend. But this ignores a crucial reality: tax-efficient directorschoose to leave money in the company. The money is still theirs.

The accessibility argument

Some lenders argue that retained profits aren't immediately accessible for mortgage payments. This is technically true but misses the point — a director can declare dividends at any time (subject to having distributable reserves), and the company cash is available to service personal debts.

The Tax Efficiency Penalty

Ironically, the more tax-efficient you are, the worse you look to traditional lenders. Someone who takes every penny as dividends (and pays more tax) will appear to have higher income than someone who sensibly retains profits.

Solutions

Solution 1: Use Net Profit Lenders

Best option if you want to stay tax-efficient

Several lenders now use "salary + share of net profit" rather than "salary + dividends." These lenders look at your percentage ownership of company profits, regardless of how much you've extracted.

Solution 2: Increase Dividend Extraction

Best if net profit lenders don't suit you

Increase your dividend extraction 12-18 months before applying. This will increase your "salary + dividends" figure but does mean paying more tax.

Consider the trade-off: extra tax paid vs. additional borrowing capacity.

Solution 3: Use a Specialist Broker

For complex situations

A broker specializing in self-employed and Ltd company mortgages will know which lenders offer the best treatment for your specific circumstances. They can also present your case optimally to underwriters.

Which Lenders Consider Retained Profits

The following lenders use calculation methods that effectively consider your share of company profits, not just what you've extracted:

High Street

  • Nationwide
  • Halifax

Specialists

  • Accord
  • Kensington
  • Precise

Building Societies

  • Yorkshire BS
  • Leeds BS

Note

Criteria changes regularly. Verify current policies before applying.

See full comparison →

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See which lenders would give you the best borrowing based on your actual company profits.

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Frequently asked questions