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Net profit mortgages


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Net profit mortgages

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Last reviewed on 7th March 2022

Getting a mortgage when self-employed is often far from easy. It’s unlikely you’ll have payslips to prove your income, so how would you document your income to a lender? One way of proving your income is by declaring your company’s net profit amount. In doing so, you’d then need to apply for a net profit mortgage.

There are many ways to prove your income when you’re self-employed. The method you choose will largely depend on the way your company or self-employment is arranged. Being your own boss can be great but it can make the mortgage process slightly more complex. Nonetheless, having an advisor on your side can simplify the entire mortgage process.

If you require a mortgage using your net profit as an income source, make an enquiry and an advisor will help you further. Our guide will also cover key areas for you to consider before applying for a mortgage.

What is a net profit mortgage?

A net profit mortgage is based on the amount of net profit your business has generated. Unfortunately, it’s difficult to get a mortgage based on gross profit. That being said, getting a mortgage with net profits is possible whether you’re a director or a sole trader.

Lenders will calculate your affordability in their own unique way. As a result, you may be able to borrow more from one lender as opposed to another. Furthermore, some lenders will consider retained profits in a business, whereas other lenders won’t. This is why applying with the most suitable lender can increase your chances of approval and allow you to borrow more.

Ultimately, your mortgage will be assessed on your declared net profits. This can sometimes be problematic as you can perhaps afford a lot more than your accounts show. This is why mortgages for the self-employed aren’t as straightforward as mortgages for those that are employed.

Learn more: How to get a mortgage when self-employed

Will I qualify for a mortgage based on net profit?

If you have a business that generates a net profit each year, you should be able to apply for a mortgage using your net profit.

Those that can use net profits for a mortgage include:

  • Company directors
  • Sole traders
  • Freelancers
  • Landlords

Proving your income is just one part of your mortgage application. Lenders will also assess your credit score and other circumstances involving your financial and personal details. The length of time you’ve been trading will also play a part in your application. Having a sizeable deposit will place you in a better position than having a smaller deposit.

If you’re employed and receive a salary from an employer, then it’s unlikely you’ll be able to apply for a net profit mortgage. This is because you’d receive payslips each month and not any profits from a business.

How much deposit will I need for a net profit mortgage?

The deposit amount you’ll require for a mortgage will depend on the lender you approach. For instance, certain lenders may require a bare minimum of 10%, whereas others may be satisfied with a 5% deposit. Lower deposits are often accepted with more established businesses and higher credit scores. A new business or recent credit problems may require you to save for a higher deposit.

Saving for a higher deposit can unlock better deals which can save you money over your mortgage term. That being said, if you’re keen to get on the housing ladder, waiting may not be an option. A deposit of 15% can unlock some great deals and higher deposits could allow you to access headline rates.

ask a mortgage broker

How much can I borrow for a net profit mortgage?

There are many factors that can affect the amount you’re able to borrow for a mortgage. That being said, your net profit amount will perhaps be the most important factor for how much you can borrow. This is because lenders use income multipliers as part of your affordability assessment. Lenders will calculate your affordability by multiplying your annual net profit.

Each lender varies, with some calculating your net profit by three times, whereas other lenders may multiply by five times. The differences in what each lender will lend can be quite staggering. This is why it’s important to approach the right lender, especially if you want to boost your borrowing potential!

Some lenders may use your latest net profit figures as an income multiplier. Other lenders may simply use your average net profit over the last three years if your accounts go back this far.

If you require a large mortgage, lenders may request more information than usual. Being self-employed can sometimes bring a level of uncertainty around how your business will progress. Lenders also share this same level of uncertainty.

If you can show that you have future work secured in the form of contracts or other documents, it can certainly help your application. It may also incentivise lenders to offer you a higher mortgage amount. You can use our self-employed mortgage calculator here to work out how much you can borrow based on your net profit.

Using your net profit as a sole trader

Using your net profit for a mortgage will be slightly different if you’re a sole trader. For instance, lenders will typically assess your last three years’ worth of accounts. This can either be with certified accounts or your self-assessment SA302 documents.

If your net profit has fluctuated quite considerably each year, lenders are likely to calculate an average over the last three years. If you’ve recently made a loss or invested heavily in your business, it can have a negative impact on your application. Certain lenders won’t lend if you’ve recently made a loss when compared to previous years.

If it appears as though your business is growing it can work wonders for your mortgage. That being said, the opposite can cause lenders to question the strength of your business and whether you’ll be able to repay a mortgage.

The good news is that each lender is different and may only use your most recent income figures if they’ve increased. Even if you’ve made a recent loss, lenders may allow for this, especially if you’ve invested funds back into your business. Some lenders may even allow you to apply with accounts for just one year.

Can a company director apply for a mortgage using net profit?

Applying for a mortgage as a company director is slightly different from how a sole trader would apply. This is because you’re likely to have a limited company. As a result, the way you withdraw your income will be from dividends and an annual salary. Only some lenders will allow you to use your company’s net profit in addition to the income you’ve personally withdrawn.

As a company director, it’s extremely important that you apply with a suitable lender. This is because certain lenders simply won’t allow you to use retained profits or net profits from your limited company.

In contrast, there are lenders that will consider the income you’ve withdrawn from the company along with the profits within the business itself. This can improve the amount you’re able to borrow.

How to apply for a mortgage using net profit

Being self-employed can vary quite considerably for each borrower. You may even be employed but want to use the income from a part-time business or investments that you own. Either way, the majority of lenders will consider net profit when assessing your affordability.

With so many variables involved, if you approached a lender that wasn’t suitable, you risk being declined. If you are approved, you may only be offered a small mortgage amount. In comparison, going to a lender that’s been handpicked by an advisor means you’re likely to be approved and offered the maximum loan amount possible.

If you want to apply for a mortgage using your net profit towards your income, speak to an advisor who can help you further. We’ll assess your business and the number of years you’ve been trading. We’ll then assess the rest of your financial profile such as your credit history and the details of your purchase to ensure we only approach the most suitable lenders.

Using this method can save you a lot of money over your mortgage term. You can make an enquiry to speak to an advisor and check to see the type of mortgages you’ll be eligible for.


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About the author

Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.