A company director who pays themselves a small salary and takes the rest as dividends can look, on paper, like a low earner. Lenders that assess directors on salary alone will lend accordingly. Others look further — at dividends, and in some cases at profit retained in the business — and can reach a very different figure on identical accounts. Knowing which lender does what is most of the job.
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Why salary alone understates the position
Many directors draw a modest salary for perfectly ordinary reasons and take further income as dividends. If a lender assesses only the salary, the resulting borrowing figure bears no relationship to what the household actually lives on.
This is not a loophole or an argument to be won. It is simply that lenders have different definitions of income for a director, and the definition determines the answer.
Salary and dividends
The most common approach is salary plus dividends, usually averaged over the last two years, or sometimes taken from the most recent year where it is lower. This suits directors who draw most of the profit out of the business each year.
It suits less well where profit has deliberately been left in the company — to fund growth, to hold a buffer, or on an accountant's advice. Under this approach, money left in the business simply does not count.
Company profit and retained profit
Some lenders will consider salary plus the director's share of net profit, and a smaller number will look at operating profit or add retained profit back in. For a director who leaves money in the business, this can produce a materially higher borrowing figure on exactly the same accounts.
This approach is not universal, and it is not a right. Lenders that offer it apply their own conditions — on shareholding, on trading history, on the profit figure used and on how consistent it has been. It is worth saying plainly that no lender will always accept retained profit, and any guide implying otherwise is overselling it.
Shareholding and trading history
- Shareholding,Lenders normally treat a director with a shareholding above a set threshold as self-employed rather than employed. The threshold varies, and where you sit relative to it changes which assessment applies.
- Share of profit,Where profit is considered, it is generally your percentage share rather than the whole figure. A 50% shareholder is usually credited with 50%.
- Trading history,Two full years of accounts is a common minimum, with some lenders accepting one year and applying a more cautious view. Less than a year is difficult, though not always impossible.
- Consistency,Lenders are looking for a stable or improving pattern. Volatility invites questions, which are answerable but need answering.
When the latest year is lower
A dip in the most recent year is one of the most common reasons a director is offered less than expected. Many lenders will use the latest year alone where it is lower than the average, on the view that it is the most current picture. That single decision can materially reduce the borrowing.
Where there is a clear and evidenced explanation — a one-off investment, a lost contract since replaced, a deliberate change in how profit is drawn — some lenders will consider it, usually with a letter from your accountant. It is worth preparing that explanation rather than waiting to be asked.
Documents you will usually need
- Company accounts,Typically the last two to three years, finalised and signed off.
- SA302s and tax year overviews,Both are normally required together, since one evidences the figures and the other evidences that they were submitted.
- Accountant details,Many lenders will approach your accountant directly, and some require particular qualifications.
- Business bank statements,Commonly requested, particularly where the latest accounts are some months old.
- Personal bank statements,To evidence the income actually reaching you and your regular commitments.
Where trading has changed materially since the last accounts, up-to-date management figures can help. They are not accepted by every lender, but they can support a case that year-old accounts would understate.
Recent changes to the company or your role
Incorporating a business that previously traded as a sole trader, changing your shareholding, adding a director or moving between companies can all affect how a lender views trading history — sometimes resetting it from the lender's point of view even though the underlying business is unchanged.
Where a change is planned rather than done, the timing is worth discussing before it happens. It is considerably easier to work around a change that has not yet been made.
The lowest advertised rate is often the wrong target
For a director, the lender that will lend the amount you need on a sensible view of your income is usually worth more than the one with the sharpest headline rate. A slightly higher rate on the borrowing you actually need beats an excellent rate on an amount that does not buy the house.
The practical starting point is a look at your last two years of accounts and your shareholding, to establish the range of figures different lenders would reach. That is a conversation rather than a form, and it is worth having before an application is made anywhere.
Common questions
This guide is general information, not regulated financial advice, and reflects our understanding of the rules at the date shown. Tax treatment depends on individual circumstances and may change. Your home may be repossessed if you do not keep up repayments on your mortgage. Not all buy to let mortgages are regulated by the Financial Conduct Authority.