How lenders read a company director's income, and why brokers differ

If you run a limited company and you have looked into a mortgage, you have probably had the odd experience of being told two different things by two apparently competent people. One says the figure available to you is modest. Another looks at the same accounts and says something quite different.

Neither of them is necessarily wrong, and the reason is worth understanding, because it changes how you go about the whole thing.

The problem in one sentence

Your income is not one number, and a mortgage process built around payslips struggles with that.

An employed applicant hands over three payslips and the question is largely settled. A director's income might be a modest salary, plus dividends, plus profit deliberately left in the company. All three are real. Which of them counts, and how much, is not a fact about you: it is a matter of how a particular lender chooses to look.

The broad approaches lenders take

There is no single rule, and this is the crux of it.

Salary plus dividends. Some lenders look at what you actually drew out of the business: your salary and the dividends declared. Straightforward to evidence, and it works well if you have been taking most of the profit.

Salary plus a share of retained profit. Some lenders may instead consider salary together with profit left in the company. For a director who has been reinvesting rather than drawing, this can present a very different picture of the same business.

We have deliberately not named lenders or said which approach is available to you, because that depends on your circumstances and on criteria that change. The point is that both approaches exist, and which one is relevant is exactly the sort of thing advice is for.

So why do two brokers reach different answers?

Not because one has a better relationship with a bank. Three more ordinary reasons:

They are reading the accounts against different lenders' criteria. Same document, different rulebooks.

They are reading them with different levels of confidence. A set of company accounts is a technical document. Knowing which line matters, and how a lender will treat the difference between drawings and profit, is a skill rather than a formality.

One of them has asked a question the other has not. A great deal turns on detail: how long the company has traded, whether one year was unusual, whether the figures filed match what you believe you earn.

What tends to get looked at

In general terms, and without implying what any lender will do:

• How long the company has been trading, and whether there is a settled pattern rather than one good year.
• The trend across years, not the best of them. A rising picture reads differently from a falling one.
• Drawings against profit, which is where a lot of confusion sits.
• Whether the accountant's figures and your own understanding agree. They often do not, and it is much better found out early.

Where we are different, stated plainly

JB Partners sits alongside MCC Partners, a firm of accountants. In practice that means a set of company accounts is read by people who read accounts for a living, rather than being interpreted from a PDF by somebody who does not.

For an employed applicant with a payslip that changes very little. For a director whose income arrives in three forms, it can change the whole conversation.

What we are not going to do

We are not going to tell you how to structure your income, when to declare dividends, or what to leave in the company. That is tax advice, it depends entirely on your circumstances, and it belongs in a conversation with an accountant rather than in a blog post. The fact that there is one next door does not change where that line sits.

Nor will you find any suggestion here about presenting figures differently to improve an application. Your accounts say what they say.

If this sounds like you

The most useful thing you can do is have the conversation before you need it, with your accounts to hand. It costs nothing: the initial consultation is free of charge and without obligation.

We are in Gravesend, and you will speak to the same adviser throughout.

Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

There may be a fee for mortgage advice. The precise amount of the fee will depend upon your circumstances.