How to leverage company profits towards your personal mortgage

By Luther Yeates on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs

For business owners, despite the wealth held within your company, traditional mortgage lenders often struggle to accommodate unconventional income structures.

However, there are some lesser-known strategies that can help you unlock your business’ financial potential to secure the home you’ve set your sights on.

The challenges business owners face with mortgages

Most business owners structure their income for tax efficiency. This often means drawing a modest salary, supplemented with dividends, and leaving a significant portion of profits within the company. 

While this approach minimises taxes, it can create challenges when applying for a mortgage.

Traditional lenders primarily base affordability on personal income – usually salary and dividends – and often disregard retained company profits. As a result, many business owners find themselves eligible for far smaller loans than they can realistically afford.

Three solutions for bigger borrowing

The good news is that some lenders recognise the unique financial circumstances of business owners. 

Firstly, these specialist lenders may include retained company profits, net of corporation tax, in their affordability calculations.

Retained profit as income

Instead of looking solely at your personal salary and dividends, certain lenders consider the net profits retained within your business. This approach provides a more accurate representation of your true earning potential and can significantly increase the size of the mortgage you qualify for.

Customising accounting periods

Secondly, if your company’s recent financial performance includes a surge in profits, you can often work with your accountant to adjust your accounting periods. By extending an accounting period to include additional months of high earnings, you can present a stronger financial position to lenders.

Example: Your e-commerce business had an exceptionally profitable six months. Your accountant could potentially extend your company’s accounting year to 18 months to catch this most recent income, showing a higher average profit (it’s still calculated pro rata for affordability). This boosts lender confidence and can secure a better loan offer.

Using a director’s loan as a deposit

If you plan to use funds from your company for your mortgage deposit, you may also want to consider taking a director’s loan to work this around your business and personal cashflow. 

This is an interest-free loan to a director from the company, provided it’s repaid within the same financial year. To optimise this strategy, your accountant can later reclassify the loan as a dividend in the next tax year, spreading the tax liability over a more manageable timeframe – the payment won’t need to be made for almost two years depending on what time of the year you’re applying for a mortgage.

Unfortunately most business owners just don’t realise the options that are available to them – talk to any mainstream lender yourself about this type of application and you’ll hit a brick wall.

Big banks are geared for fairly bog-standard mortgage applications in bulk (employed individuals with healthy deposits etc.). They can afford to be picky and gloss over anything too specialist, because their market share is so big. But this is where specialist lenders can take a much closer look at your affordability and use a common sense approach to get a deal over the line – they gladly pick up the slack where mainstream lenders don’t.

Examples of business owners that could benefit

For many business owners, income can be irregular or structured to maximise tax efficiency, which doesn’t always align with traditional mortgage criteria. This is particularly relevant for:

• Contractors and freelancers: Those working on project-based contracts may have fluctuating monthly incomes, making it challenging to prove consistent earnings.
• Small business owners: Many owners draw a low salary and rely on dividends while leaving profits in the business to fuel growth.
• Directors of limited companies: Directors who retain large profits within their businesses may appear to have low personal income despite significant business success.
• Seasonal or cyclical businesses: Companies with income peaks and troughs may struggle with traditional lender assessments that don’t account for retained profits.

Leveraging retained profits or using a director’s loan can provide much-needed cashflow for personal needs, like purchasing a home. This approach ensures business owners don’t need to disrupt their tax-efficient income structures while still accessing the borrowing potential their business can support. For those with unpredictable earnings, such as freelancers or consultants, these solutions can bridge the gap between actual financial health and lender assessments.

Before committing to one of these strategies, keep the below tips in mind – it’s rare to find a high street mortgage lender that will accommodate for this type of application, so you should seek support from a qualified mortgage broker and accountant.  

#1 Work with a specialist mortgage broker

A broker familiar with complex income structures can connect you with lenders who take a broader view of your financial situation.

#2 Maintain clear financial records

Ensure your company’s accounts are well-organised and up-to-date. Lenders will require detailed documentation to evaluate your application.

#3 Plan with your accountant

Timing is crucial. Coordinate with your accountant to optimise your income presentation but ensure compliance with tax regulations.

#4 Affordability still matters

While these strategies can increase your borrowing potential, lenders will still assess affordability to ensure you can comfortably manage repayments. And you should make sure of this too – borrowing too much can be a slippery slope into spiralling debt if mismanaged.

Whether these techniques are right for your circumstances will depend on your business structure, personal accounting and own preferences, but broadly speaking, leveraging your company’s profits for a mortgage is not only possible but can be highly advantageous when approached correctly. 

The information in this article should not be regarded as financial advice, and you should seek help from a qualified accountant and financial adviser before you take action on your mortgage.

Luther Yeates is head of mortgages at UK Expat Mortgage.

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