TL;DR
- Your accountant's job is to minimise your tax bill. A mortgage lender's job is to assess how much you can safely borrow. Those two objectives are very different, which means the same company accounts can produce vastly different borrowing figures depending on which lender is assessing them.
- Some lenders only consider your salary and dividends. Others use your salary plus your share of the company's net profit after corporation tax. A smaller number of lenders assess your salary alongside your share of the company's profit before corporation tax.
- Getting this right usually comes down to presenting your accounts to the correct lender, not simply having accounts that look impressive on paper.
If you're a limited company director, business owner or dental professional, choosing the right lender is often far more important than simply having strong accounts.
At Sarah Grace Mortgages, we regularly work with business owners and their accountants to present company income in the way that best reflects the strength of the business while meeting each lender's affordability criteria.
Your Accountant and Your Mortgage Lender Are Working Towards Different Goals
Your accountant asks:
"How can we legally minimise the amount of tax you pay?"
That might involve:
- Paying a modest salary
- Drawing carefully planned dividends
- Leaving profits within the company
- Timing expenditure to maximise tax efficiency
Your mortgage lender asks:
"How much reliable income does this business generate that can comfortably support a mortgage?"
They aren't assessing your tax position. They're assessing lending risk. The remuneration strategy that saves you thousands in tax can sometimes reduce the income a lender uses for affordability.
How lenders Calculate a Business Owner's Income
Not every lender views a set of accounts through the same lens. Across the UK market, mortgage providers generally assess limited company structures using one of three calculation methods:
This explains why two lenders can assess exactly the same accounts and arrive at completely different borrowing figures. One lender may only consider the income you've physically withdrawn from the business. Another may also recognise profits that remain within the company.
Common Issues That Catch Business Owners Out
Several company structures cause genuine confusion when it comes to mortgage
assessment. The most common include:
- Holding company structures: where a holding company owns the trading company, and some lenders struggle to trace or recognise profit through that layer.
- Split ownership: where shares are divided between a spouse, family member, or business partner for tax efficiency, which can reduce the income a lender attributes to you individually.
- Property held in a separate entity: where buy to let or commercial property sits in its own company rather than the trading business, which some lenders exclude entirely from affordability.
- Multiple trading entities: where income is spread across more than one limited company, making it harder for a lender to build a complete picture without seeing the full group structure
Different lenders assess different years
Many business owners assume every lender averages their last two years' accounts. In reality, lender criteria vary considerably.
Depending on the lender, they may assess:
- The latest year's figures
- An average of the last two years
- The lower year's figures if income is reducing
Selecting a lender whose assessment method suits your circumstances can make a substantial difference to affordability.
Retained profits
Retained profits are another common source of confusion. Some lenders ignore retained profits completely. Others include some or all of them when assessing affordability, provided they meet the lender's criteria. Understanding which lenders recognise retained profits can significantly improve the options available.
Shareholding matters
How much of the company you own can also affect how your income is assessed. Some lenders apply different affordability policies depending on your shareholding, particularly where ownership is split between multiple directors or shareholders. This is another reason why specialist advice is valuable before making an application.
Why This Is Even More for Dentists
This issue is particularly relevant for dentists because income structures are rarely straightforward.
Associate dentists
Many associates operate as sole traders and are assessed using tax calculations and tax year overviews, although some lenders will consider recent pay schedules where appropriate.
Incorporated associates
Some associates operate through limited companies, particularly where they undertake private work. Depending on the lender, company profits may be assessed very differently.
Practice owners and principals
Practice owners often have more layered income than associates. NHS income is typically taken as a sole trader or, where there's more than one owner, through a partnership. Private income is often run through a limited company, and some practice owners use a holding company structure, particularly where there's more than one practice or shares are split between family members for tax efficiency.
Practice owners often retain profits within their companies to invest back into the business, purchase equipment or support future expansion. Some lenders recognise this trading strength. Others ignore it entirely.
As a result, two dentists with identical practices can receive very different mortgage offers simply because they have approached different lenders.
How to Improve Your Chances of Securing the Right Mortgage
1. Prepare your accounts early
Having up-to-date accounts gives lenders the clearest picture of your business. If you've recently incorporated or have less trading history, there may still be suitable lenders available.
2. Don't change your remuneration purely for a mortgage
Increasing your salary or dividends simply to improve affordability isn't always the best solution. It could create unnecessary tax liabilities without improving your borrowing position. Always speak to both your accountant and your mortgage adviser before making changes.
3. Let your broker work with your accountant
One of the most effective ways to secure the right mortgage is to ensure your broker and accountant work together. We regularly speak directly with our clients' accountants to understand how income has been structured and present it to lenders in the most appropriate way. This often avoids unnecessary delays and ensures the lender has a complete understanding of the business.
Specialist Advice Makes the Difference
A mortgage application isn't just about numbers. It's about buying your family home, moving to the next stage of your career or investing in your future. Business owners often have excellent incomes that simply don't fit standard affordability models. That's why choosing a broker who understands complex income structures is so important.
At Sarah Grace Mortgages, we specialise in helping business owners and dental professionals secure mortgages with lenders whose affordability criteria genuinely reflect their financial position.
We have a dedicated team rather than an impersonal call centre. Sarah, Jordan, Karen, and Liane understand how specialist underwriters tick. You can read about our background on our About Us page or see real examples of how we navigate complex applications on our Case Studies page.
FAQs
Why did one lender offer me significantly less than another?
Different lenders assess company income differently. Some only use salary and dividends, while others also consider company profits. This can have a significant impact on how much you can borrow.
Should I increase my salary or dividend draw before applying?
Not necessarily. Doing so could increase your tax liability without improving your borrowing position. It's usually better to choose a lender whose affordability model suits your existing remuneration structure.
Can you speak to my accountant directly?
Yes. We regularly liaise with accountants to understand company accounts, remuneration strategies and business performance before recommending the most suitable lender.
Let's Make Sure Your Accounts Work for You
Your accountant and your mortgage lender don't need to agree on everything. They simply have different objectives. The key is choosing a lender that understands your business and assesses your income appropriately. If you're a business owner or dental professional looking to understand how much you could borrow, we'd be happy to help. Contact Sarah Grace Mortgages today for a personalised assessment.
COMPLIANCE NOTE
Your home may be repossessed if you do not keep up repayments on your mortgage. Sarah Grace Mortgages Limited is authorised and regulated by the Financial Conduct Authority and is Registered in England and Wales. Registered Number 09839864.
The Financial Conduct Authority does not regulate most forms of Commercial Buy to Let Mortgages and Mortgages to Limited Companies. This article is for general information only and does not constitute financial advice. All mortgage applications are subject to status, valuation and individual lender criteria.
