Director Retained Profit Mortgages: Using Undrawn Company Profits

What Is Retained Profit?

Retained profit is the portion of your company's net profit that hasn't been distributed as dividends or drawn as salary. It sits in your business bank account or is reinvested in the company. For many directors, retained profits represent a significant asset that standard mortgage applications completely ignore.

Why Standard Lenders Don't Count Retained Profits

High street lenders assess personal income only — salary, dividends, and other personal income sources. Money in your company is not your personal income until you draw it (and pay the associated tax). This means:

• £100,000 in retained profits = £0 for a standard lender
• Personal salary drawn at £12,570 = assessed on £12,570
• Dividends taken = assessed but capped

Specialist Lender Approaches

Enhanced Multiple

Some specialist lenders offer higher lending multiples (5× or 5.5× income) specifically for directors who can demonstrate:

• Profitable trading history (2+ years)
• Consistent retained profit growth
• Strong business bank balances
• Clean personal credit

Retained Profit Assessment

A small number of lenders will consider a proportion of retained profits as "future income potential." Typically:

Dividend History Proof

Lenders who accept retained profits want to see a consistent dividend history — usually 2+ years of dividends taken in addition to retained profits. This demonstrates the profits are genuine and the business can sustain them.

Documents You'll Need

• 2–3 years of accountant-prepared company accounts
• Business bank statements (12 months)
• SA302 and tax year overviews (personal)
• Dividend vouchers
• Management accounts (if more recent than year-end)
• Company tax return (CT600)
• Business plan or projection (some lenders)

Tax Implications

When you draw retained profits as dividends:

1. You pay dividend tax on anything above the tax-free dividend allowance
2. Your personal tax rate determines the dividend tax rate
3. The company's corporation tax is already paid on the profits

Your mortgage broker should work with your accountant to model the most tax-efficient drawing strategy.

Summary

Retained profits are a powerful but often overlooked mortgage tool for company directors. While most high street lenders ignore them, specialist lenders can factor them into affordability — potentially increasing your borrowing capacity by £50,000–£150,000.