Limited Company Director Borrows £1.2m on Retained Profit, Not Dividends
A director who paid himself £90,000 a year while his company retained the rest of its profit needed £1.2m of borrowing for a family home. The salary-plus-dividends default recognised barely a third of the income required; a net-profit assessment closed the gap without a single additional dividend being drawn.
Client Snapshot
£1,600,000
Purchase price
£1,200,000
Mortgage amount
75%
Loan to Value (LTV)
Founder and sole director of a specialist engineering consultancy, 100% shareholder, nine years trading · Four-bedroom family house, South West London · £400,000 deposit · Capital and interest, five-year fixed rate
Key constraint
Unwilling to increase dividends purely to satisfy an affordability calculation
Context
The client had run his consultancy for nine years and paid himself the same way throughout: a salary at the personal allowance, dividends to a planned level, and the remainder of each year's profit retained in the company. With a second child on the way, he and his wife had agreed a £1.6m purchase and needed £1.2m of borrowing. What mattered to him, beyond the approval itself, was not being forced to restructure how he paid himself in order to get it.
The Challenge
On the assessment most lenders apply to a company director, the numbers did not work. The default method recognises basic salary plus the dividends actually drawn: £12,570 plus £77,430, or £90,000 of income. At 4.5 times income that supports around £405,000 of borrowing, and even a 5 times tier only reaches £450,000. Against the £1.2m required, the drawn income alone implied a multiple of more than 13 times, far outside the range mainstream affordability models work in.
The obvious fix, drawing substantially larger dividends for a year or two, would have meant paying dividend tax on money he did not need, purely to make a calculation work, and would still have collided with averaging rules that may take the lower of the latest year or a two-year average. It was also unnecessary. The company's post-tax profit was real, evidenced and rising; the question was whether a lender could be found that reads it.
Most of the lenders reviewed for this profile were ruled out at the first pass, because their director policy recognises salary and dividends only, or reserves net-profit treatment for case-by-case referral. That left a short list of lenders with a documented route for assessing a director on salary plus their share of the company's net profit.
This is the situation covered in our guide to complex and self-employed income mortgages →
Director and Mortgage Adviser
Specialist mortgage broker for City professionals. 10+ years advising company directors and business owners on structuring mortgages around salary, dividends and retained profit, where the assessment method a lender applies can matter more than the rate.
Lender Strategy
A smaller group of lenders may assess a director on salary plus their share of the company's net profit after corporation tax, using that figure in place of dividends. The gates differ: at least one lender operates the route only above a loan-size threshold and where the directors hold a controlling stake, both of which this case met; others average profit over two years or, in a few cases, may use the latest year alone.
The case was placed with a high-street lender whose self-employed policy may assess salary plus a director's share of net profit after corporation tax, averaged over two years. On that method the recognised income was rebuilt from the same accounts: £350,000 pre-tax profit less £87,500 corporation tax (illustrative, at 25%) gave £262,500 post-tax in the latest year; £330,000 less £82,500 gave £247,500 the year before; the two-year average was £255,000. Added to the £12,570 salary, recognised income became £267,570, and £1.2m of borrowing sat at just under 4.5 times that figure, inside standard director multiples with no enhanced tier or exception required.
Worked example, reading the same accounts
Sole owner-director, £90,000 drawn, £350,000 latest-year pre-tax profit
The same director, the same accounts, assessed two ways.
- Salary drawn
- £12,570
- Dividends drawn
- £77,430
- Pre-tax profit (latest year)
- £350,000
- Pre-tax profit (year before)
- £330,000
- Post-tax profit, two-year average
- £255,000
- Buying at
- 75% Loan to Value (LTV)
£12,570 salary plus £77,430 dividends = £90,000 recognised. At 4.5× that supports around £405,000. Profit left in the company is not counted.
£255,000 two-year average post-tax profit plus £12,570 salary = £267,570 recognised. £1.2m sits at just under 4.5× that figure, inside standard director multiples.
Same accounts, assessed two ways. The borrowing range runs from £405,000 to £1,200,000, driven by the assessment method, not the rate.
Please note: These figures are for illustrative purposes only. The actual amount you can borrow will depend upon your personal circumstances, credit profile, LTV, the lender's individual criteria and a full affordability assessment.
The application was packaged so the underwriter could trace every figure: two years of finalised accounts, tax calculations (SA302) with the corresponding tax year overviews, an accountant's reference confirming the shareholding and post-tax profit figures, and business bank statements. A short covering note explained that the dividend level was a choice, not a ceiling, and evidenced the consultancy's contracted pipeline to support sustainability.
The Result
The Result
A £1,200,000 mortgage agreed at 75% LTV, with no change to salary or dividend policy
£1,200,000
Loan
75%
LTV
£267,570
Recognised income (salary + share of net profit)
Just under 4.5×
Income multiple
First call
Day 0
Full mortgage offer
A little over 3 weeks
Completion
Around 6 weeks after offer
Seller's timetable
Met
A £1,200,000 mortgage was agreed at 75% LTV, capital and interest over 25 years, on a five-year fixed rate in line with high-street pricing at this LTV. First conversation to full mortgage offer took a little over three weeks, and completion followed around six weeks after that, inside the seller's timetable. The client's salary and dividend policy did not change: the borrowing was carried by profit the company had already earned and retained.
For borrowing at this scale, our guide to large loans (£1m+) → covers the wider landscape.
Why This Matters for Similar Clients
Directors often assume their borrowing power is fixed by what they draw, and that the only lever is drawing more. In practice, the same set of accounts can support very different loan sizes depending on the assessment method a lender applies, and the method is a matter of lender selection rather than negotiation. Paying yourself tax-efficiently and borrowing at a sensible multiple are not in conflict; the combination simply narrows the list of lenders worth approaching.
What We Can Do for You
- Establish before any application whether a salary-plus-net-profit assessment fits your accounts, shareholding and loan size
- Match your profile to lenders whose director policy may recognise the most of your income, including routes gated by loan size or controlling stakes
- Package accounts, tax calculations (SA302) and an accountant's reference so an underwriter can trace every figure first time
- Structure the application so retained profit supports your borrowing without changing how you pay yourself
FAQs
With the right lender, yes. Most mainstream lenders use salary plus dividends only, but a smaller group may assess salary plus your share of the company's net profit after corporation tax, which brings retained profit into view.
Not necessarily. Raising dividends purely for an application creates a tax cost and may still be blunted by averaging rules. A lender using the net-profit method can recognise the income where it already sits, in the company.
Typically your shareholding percentage applied to the company's profit after corporation tax, added to your salary. Many lenders may average the figure over two years; a few may use the latest year alone.
At some lenders, yes. At least one operates the route only above a loan-size threshold and where the directors together hold a controlling stake, while others apply shareholding minimums of around 20% to 25%.
Two years of finalised accounts, which is the common requirement. A smaller number of lenders may consider one year of trading, particularly where the company continues established work in the same field.
Related Case Studies
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
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This client scenario is an amalgamation of cases we have handled. Details have been combined and adjusted to protect client confidentiality, and it does not describe a single client or transaction.