Retained Profits Mortgages, Director Cash and Reserves Checks

What is a retained profits mortgage?

A retained profits mortgage is a residential mortgage in which a company director's income is assessed on their PAYE salary plus their percentage shareholding of the company's net profit, as shown in the company accounts, whether that profit was paid out as dividends or kept in the company. It suits the owner-manager who takes a small salary and modest dividends for tax efficiency and leaves the rest of the profit in the business. On the salary and dividends method that director looks like a modest earner, while on the retained profit method the same accounts can support a larger loan: £200,000 more at 5 times income in the illustrative worked example below. Some lenders that use the method test the profit figure before relying on it, checking that the company has the cash to pay it out, that the reserves behind it are real and that drawing it would not leave the business short of cash. Where those checks fall short they count less of the retained profit, sometimes only what the director drew.

A mortgage on the director's own home is a regulated mortgage under the mortgage conduct rules of the Financial Conduct Authority, known as MCOB (FCA Handbook: MCOB). Not every lender's self-employed criteria include the method, so a mortgage based on retained profits comes only from lenders whose criteria do. Mortgage lenders that use retained profits also set the shareholding a director needs. In our experience some lenders disregard a shareholding under 19% and some disregard holdings of 24% and below, assessing the director as an employee. Some lenders that read share of net profit apply it only above a set holding, such as a majority. Our limited company director mortgages page compares the two income methods in full, and our page on self-employed mortgages covers every self-employed structure.

A retained profits mortgage is taken in the director's own name. Buying property inside the company is a different product, an SPV mortgage, covered on our SPV mortgage rates page. A buy to let in the director's own name is assessed mainly on the rent, as our guide to buy to let mortgages for self-employed borrowers explains.

Mortgage Lane arranges retained profits mortgages for directors who own all or part of their trading company: consultancies, contractors working through their own company, trades, professional practices, e-commerce and family businesses. That includes joint directors and directors with a holding company structure, a director's loan account or profit building up for future investment. We calculate the income on the retained profit method and test it against the checks each lender makes behind the figure before choosing where to apply.

Retained profits mortgage rates

Retained profits mortgage rates are set by each lender by product and loan to value band, and the loan a lender will approve matters as much as the rate. Retained profit mortgage lenders can price on their standard ranges, and whether a director pays a different rate from another borrower with the same product and deposit varies by lender. Because not every lender counts retained profit, the rate to compare is the one at a lender that does, set against the larger loan it approves. The lowest rate at a lender that reads only salary and dividends may come with a smaller loan.

Leaving profit in your company? Get in touch with your last two years' company accounts and tax calculations. We work out your income on the retained profit method and check it against what lenders look at behind the figure.

Retained profits mortgage criteria

Lenders that count retained profit check the same facts on every case, and each sets its own limits for them. Two rows rest on Mortgage Lane's experience of the lenders we use: the shareholding line and the income multiple. The reserves row follows the Companies Act 2006 and the affordability row the FCA's rules, as at October 2026. The other rows describe how lenders differ. The lender's underwriting decides each case, and its affordability assessment can reduce the figure any row produces.

Types of retained profit case, and how each is assessed

Every retained profit case uses the same method, and the case turns on who owns the shares, how the company is structured and what the profit is being kept for.

Sole director and shareholder

This is the simplest case. The director owns 100% of the company and counts all of the profit after corporation tax on top of the salary, and the checks set out below decide whether a lender accepts the full figure.

Get in touch with two years' accounts.

Joint directors

Two or more directors each count their own shareholding percentage of the profit, so two directors who own 50% each count half each. Spouses or partners who are both directors and shareholders can apply together for a joint mortgage and combine their shares. Some lenders that read share of net profit apply it only above a set holding and look at joint applicants' holdings together for that test, so two directors with 50% each can be read differently from one director with 100%. Lenders also vary in how they treat the shareholding of a director who does not work in the business.

Get in touch with the shareholding register.

Holding company structures

Where the director owns a holding company that owns the trading company, some lenders read the trading company's profit through the group accounts, and others look only at the holding company's own figures. A parent company subject to the small companies regime does not have to prepare group accounts (Companies Act 2006, section 399), so a small group may have no consolidated figures at all. Group cases therefore need the consolidated accounts or both sets of accounts, with an accountant's explanation of the structure. A holding company and the trading company it controls can also be associated companies for corporation tax, which lowers the profit limits for each, as the section on how lenders count retained profit explains. Our guide to high net worth mortgages for complex income also covers large retained profits across several companies.

Get in touch with the group structure and accounts.

Profit retained for investment

A company saving profit for equipment, premises or expansion has a real reason not to pay it out, and lenders that ask whether drawing the profit would harm the business may count less of it where the company needs the cash. A letter from the company's accountant confirming that the retained profit could be drawn without damaging the business can help, alongside current management accounts showing the cash position.

Get in touch with the accountant's view of the cash position.

Contractors through their own company

Some lenders can assess a contractor who works through their own limited company under a contractor mortgage route instead, which annualises the day rate in place of reading the company's accounts. That may produce a higher figure than retained profit, so both methods are compared before a lender is chosen. Our contractor mortgages and IT contractor mortgages pages set out the rules.

Get in touch with your contract and accounts.

How lenders count retained profit

The figure is the director's shareholding percentage of the company's profit after corporation tax, added to their salary. Lenders' criteria say whether they read the profit before or after corporation tax. This page uses the after-tax figure, which is the lower of the two and the closer to what the company could pay out.

1. Start with profit before tax in the company accounts, after the director's salary, pension contributions and all business costs. Lenders do not use turnover.
2. Deduct corporation tax. For the financial year from 1 April 2026 corporation tax is 19% on profits of £50,000 or less and 25% on profits over £250,000, with marginal relief between the two (GOV.UK: Corporation Tax rates). The £50,000 and £250,000 limits are divided between associated companies, such as companies under the control of the same person, so a director who controls two trading companies has limits of £25,000 and £125,000 for each (GOV.UK: Marginal Relief for Corporation Tax).
3. Apply the shareholding: 100% for a sole shareholder, 50% for one of two equal shareholders.
4. Add the salary paid through PAYE.

Dividends are not added on top, because they are paid out of the same post-tax profit and counting both would count the same money twice. A director who drew dividends equal to all of their share of the post-tax profit gets the same figure on both methods, and one who drew less gets more on this one. Our page on mortgages for limited company directors sets the salary and dividends method against share of net profit, working through the corporation tax and the tax cost of paying the profit out as a further dividend.

The lender then assesses affordability on income net of income tax and National Insurance, as the FCA's rules require (FCA Handbook: MCOB 11.6.5R). Lenders differ in how they model the personal tax on profit that has not been drawn. In 2026 to 2027, dividends above the £500 dividend allowance are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band (GOV.UK: tax on dividends). Where a lender allows for that tax, profit that would fall in the higher rate band adds less to the modelled take-home pay.

Corporation tax, dividend tax and the company law rules on distributions are the same in England, Wales, Scotland and Northern Ireland. Income tax on the salary differs: a Scottish taxpayer pays Scottish Income Tax on their salary, while dividends are taxed at the same rates as in the rest of the UK (GOV.UK: Scottish Income Tax).

What lenders check behind the retained profit figure

A profit figure in the accounts is not the same as money the director could take, and lenders that count retained profit look at the balance sheet to see the difference. Each lender chooses which of the checks below to run, and how strictly.

Cash in the company

Profit can be tied up in unpaid invoices, stock or equipment instead of sitting as cash in the bank. Some lenders cap the retained part of the income at the cash the company holds, and some ask for business bank statements to confirm it. Others count the full share of net profit without a cash test, so the same accounts can produce different incomes at different lenders.

Distributable reserves

A company may only pay dividends out of profits available for distribution, its distributable reserves: its accumulated, realised profits less its accumulated, realised losses (Companies Act 2006, section 830). GOV.UK's guidance says a company must not pay out more in dividends than its available profits from current and previous financial years (GOV.UK: taking money out of a limited company). A company with losses from earlier years can show a profit for the latest year but have little or nothing available to distribute, and some lenders reduce the retained figure where reserves are low or negative.

The director's loan account

A director's loan account records money the director takes from the company that is not salary, dividends or expense repayments, and money the director puts in or lends to it. Any balance at the end of the financial year goes on the company's balance sheet (GOV.UK: director's loans). A lender may treat an overdrawn account, where the director owes the company, as profit already extracted and deduct it from the retained figure, and some lenders treat it as a debt. A credit balance, where the company owes the director, supports the case. An overdrawn balance not repaid within 9 months of the end of the accounting period also costs the company tax at the dividend upper rate for the tax year of the loan, 35.75% for loans made from 6 April 2026 (Corporation Tax Act 2010, section 455).

Sustainability and business need

Some lenders ask whether paying out the retained profit would leave the business short of working capital, especially in businesses that need cash to trade. Criteria at some lenders also require the earnings to be sustainable, judged on the company's past performance and its prospects.

Consistency between years

A large jump in profit in the latest year, or profit that depends on one contract, is read with the previous year and current trading. Lenders that average two years set their own rule, and where profit has fallen some use the latest year alone. A fall in profit is covered in more depth on mortgages with decreasing profits, and a short trading history on one year self-employed mortgages.

The documents for a retained profits mortgage

A retained profits case rests on the company's balance sheet as much as its profit, so the evidence goes further than for a salary and dividends application.

• Company accounts for one or two years, with the full balance sheet and profit and loss account. Some lenders want accounts prepared by an accountant with a qualification they recognise.
• An accountant's certificate or reference confirming the salary, shareholding and net profit after tax and, for some lenders, that the retained profit is available to draw.
• Personal tax calculations and tax year overviews (SA302s) for the salary and any dividends.
• Business bank statements, where the lender tests cash.
• Management accounts for the current year, where the last accounts are old.

As at October 2026, a small company can choose not to send its profit and loss account and directors' report to Companies House, and it can file abridged accounts with a simpler balance sheet if all its members agree. It must still send full statutory accounts to its members and to HMRC with its Company Tax Return (GOV.UK: accounts for small companies). Lenders checking cash, reserves and the loan account need the full balance sheet, so they ask for the full accounts. Once a return is filed online, HMRC provides the SA302 for each of the last 4 years from 72 hours after filing, and a tax year overview for any year. HMRC suggests checking that the lender accepts copies you print yourself (GOV.UK: get your SA302 tax calculation).

How a retained profits mortgage is arranged

1. Accounts review. Profit after tax, shareholding, cash, reserves and the director's loan account read from the accounts; the retained profit figure and any fallback calculated.
2. Lender selection. Lenders that count retained profit and whose cash and reserves tests the company meets.
3. Decision in principle and application. An agreement in principle on the income the lender will use, then the accounts, accountant's certificate, tax calculations and bank statements submitted.
4. Underwriting questions. The cash position, the loan account and the business's need for the money explained, with the accountant's help where the question is about the accounts. Our page on a mortgage declined at underwriting covers what underwriters check.
5. Offer and completion. The mortgage offer, the legal work and completion.

Same profit, three balance sheets: the arithmetic

Three directors with identical profit can be assessed on three different incomes, because lenders that count retained profit look at what sits behind it.

Step 1. The common figures

In this illustrative case, each director owns 100% of their company, is paid a £12,570 salary through PAYE and has £70,000 of company profit after corporation tax. Each drew £30,000 in dividends, leaving £40,000 retained. At the corporation tax rates for the financial year from 1 April 2026, £70,000 after tax comes from a profit before tax of £90,136. The main rate of 25% on that profit is £22,534, and marginal relief of 3/200 of the £159,864 by which the profit falls short of £250,000 takes off £2,398, leaving corporation tax of £20,136 (GOV.UK: rates and allowances for Corporation Tax). On salary and dividends each director's income is £42,570, and on salary plus share of net profit it is £82,570.

Step 2. The three companies

The three companies differ only in their balance sheets. The table applies one illustrative lender rule to all three: the lender counts the dividends drawn, then the retained profit less any overdrawn director's loan account, capped at the cash the company holds at the year end. Lenders set their own tests, and this is one way of combining them. Borrowing is shown at 5 times income, the standard multiple in Mortgage Lane's experience, with no other credit commitments.

Step 3. Reading the gap

Company A's director gets the full benefit of the method: £412,850 at 5 times, £200,000 more than the £212,850 that salary and dividends alone would support. Company B's profit is real but not yet cash, so a lender that tests cash counts £15,000 of the £40,000 retained. A lender that does not test cash would count the full £70,000, the same £82,570 as Company A. Company C's director has already taken £20,000 out through the loan account, so the lender deducts it from the £40,000 retained, and the £5,000 of cash caps what is left. That director is assessed on £47,570, only £5,000 above the salary and dividends figure. A lender that deducted the loan account without testing cash would count £20,000 of the retained profit, an income of £62,570. Each figure comes before the lender's own affordability assessment, which can reduce it.

What decides the case

Before applying, check the balance sheet as a lender will: the cash against the retained profit, the reserves and the director's loan account. Then choose a lender whose tests the company passes, or put the company's cash position in order first. How the company manages its cash and pays its director is a matter for its accountant or a tax adviser. Partners in a firm are assessed on their share of the partnership's profit instead, as partnership mortgages explains, and an unincorporated business on sole trader mortgages. If a lender has already turned the case down on the figures, our page on a mortgage declined on affordability covers the next steps.