Net Profit Mortgages: A Guide for Self-Employed Borrowers
For self-employed individuals, securing a mortgage can often feel more complicated than it does for salaried employees. If you’re a sole trader, company director, or freelancer, mortgage lenders will assess your affordability differently, often focusing on your net profit figure rather than your total turnover.
At The Mortgage Pod, we specialise in net profit mortgages, helping self-employed mortgage applicants find the right lender based on their unique financial circumstances. Whether you take salary and dividends, retain profits in your business, or work as a sole trader, we can help you navigate the mortgage application process with ease.
What Are Net Profit Mortgages?
A net profit mortgage is a mortgage where lenders assess your affordability based on your net profit rather than other types of income. This is particularly relevant for self-employed borrowers, as traditional affordability assessments may not reflect their actual earnings due to tax efficiency measures or fluctuating income.
Unlike salaried employees, who can present simple payslips as proof of income, self-employed mortgage applicants need to demonstrate their financial stability using certified accounts, tax returns, and business records. Lenders typically look at the last two to three years of financial data to determine an average income figure before making an offer.
How Do Mortgage Lenders Assess Net Profit?
For self-employed applicants, lenders will generally use one of the following methods to calculate how much they can borrow:
1. Sole Traders & Partnerships
If you’re a sole trader, lenders will usually assess the net profit declared on your SA302 and tax return. The higher your declared net profit figure, the more you may be able to borrow. Some mortgage lenders take an average over two or three years, while others may accept the most recent year if it shows an upward trend.
2. Limited Company Directors
If you’re a company director, lenders typically consider a combination of salary and dividends. However, some mortgage providers will also take into account directors share of net profits, particularly if they show a strong financial position for the business. Retained profits can also be used, which is important as many directors leave funds in their business instead of withdrawing it as personal income.
3. Self-Employed With Fluctuating Income
For those with fluctuating income, most lenders will average out earnings over two or three years to create a stable figure. If your most recent year shows a significant increase, some mortgage companies may allow you to use that higher figure rather than an average.
Can You Get a Mortgage Based on Net Profit?
Yes! While some high-street lenders have stricter criteria, many mortgage loan providers and specialist mortgage brokers offer bespoke mortgage solutions for self-employed borrowers. These lenders understand that tax efficiency strategies can make income appear lower than it actually is, and they’re willing to look beyond the standard salary and dividends model.
How to Improve Your Chances of Getting a Mortgage as a Self-Employed Borrower
If you’re applying for a mortgage as a self-employed individual, here are some steps to strengthen your application:
- Prepare Your Certified Accounts: Ensure your accounts are up to date and professionally prepared by an accountant.
- Improve Your Net Profit Figure: If possible, avoid reducing your taxable income excessively before applying for a mortgage, as this can impact affordability assessments.
- Demonstrate a Strong Trading History: Many mortgage lenders prefer at least two years of accounts, though some specialist lenders accept just one year.
- Keep Personal and Business Finances Separate: Having well-organised business records can make it easier to present your financial situation clearly.
- Maintain a Good Credit Score: Like all applicants, having a strong credit report can improve your chances of securing a mortgage deal with a competitive interest rate.
- Speak to a specialist mortgage broker: Our team here at The Mortgage Pod are experts when it comes to mortgages for self employed applicants. You can Get Started here.
What Documents Do Self-Employed Mortgage Applicants Need?
When applying for a mortgage, self-employed mortgage applicants should be prepared to provide:
- SA302 tax calculations and tax year overviews (usually for the last two or three years)
- Latest 3-6 months Business bank statements to verify cash flow
- Certified accounts prepared by an accountant
- Evidence of ongoing contracts or expected future income (if applicable)
- A deposit of at least 10% (though 5% options may be available with certain lenders)
Which Mortgage Lenders Offer Net Profit Mortgages?
Many high-street mortgage lenders cater to self-employed individuals, but their criteria can be strict. Some lenders may only accept income from salary and dividends, while others consider retained profits and alternative income sources.
For those struggling to meet standard criteria, working with a mortgage broker who specialises in self-employed mortgages can provide access to mortgage providers offering flexible terms and bespoke lending solutions.
Advantages of Net Profit Mortgages
✔️ Allows self-employed individuals to get a mortgage based on their true income
✔️ Some lenders consider retained profits, not just salary and dividends
✔️ Specialist lenders offer bespoke mortgage solutions for non-standard income structures
Disadvantages of Net Profit Mortgages
❌ Requires additional paperwork and financial evidence
❌ Some high-street lenders may not offer competitive rates for self-employed borrowers
❌ Tax-efficient business structures may reduce borrowing capacity
FAQs About Net Profit Mortgages
Can I get a self-employed mortgage with just one year of accounts?
Yes, but your options may be limited. Some lenders require two to three years of financial records, but a few specialist lenders accept just one year, especially if you have a strong trading history.
Do mortgage lenders consider retained profits for company directors?
Yes, some lenders take retained profits into account, but not all. A mortgage broker can help identify lenders who will factor in both salary and dividends as well as company earnings.
How much can I borrow on a self-employed mortgage?
This depends on your net profit figure, credit history, and deposit size. Generally, you can borrow between 4 to 5 times your annual net profit, though some lenders may offer higher income multiples under the right circumstances.
Use our calculators below to find out how much you could borrow and what the repayments are for a mortgage if you’re self-employed.
Do I need a bigger deposit if I’m self-employed?
Not necessarily. While a larger deposit can improve your interest rates, many lenders offer standard 5-10% deposit mortgages to self-employed borrowers.
Should I use a mortgage broker for a self-employed mortgage?
Yes! A mortgage broker who understands self-employed mortgages can connect you with the right lender, improving your chances of approval and securing the best mortgage deal for your situation.
Get Expert Help with Your Net Profit Mortgage
At The Mortgage Pod, we understand the unique challenges that come with securing a self-employed mortgage. Whether you’re a sole trader, company director, or freelancer, we can help you navigate the mortgage application process and find a lender who recognises your true earning potential.
Contact us today to explore your options and get expert advice on securing a net profit mortgage that suits your needs.
