Most limited company contractors draw a small salary and take the rest as dividends, leaving profit in the company. That is sensible accounting and poor mortgage positioning.
A lender assessing you conventionally adds salary to dividends and usually averages the last two years. A contractor billing £120,000 who draws £12,570 salary and £30,000 dividends looks like someone earning £42,570 — around £191,000 of borrowing at 4.5 times income. Assessed on a £520 day rate instead: £520 × 5 × 46 = £119,600, or roughly £538,000.
Crucially, they do not usually need two years of filed accounts, and they do not need you to have drawn the income.
Rates quoted hourly but annualised as daily, or vice versa.
A recent switch can leave a gap in company records.
Can be read by the underwriter as undisclosed borrowing.
Taken irregularly, making bank statements hard to follow.
Separately, a small number of lenders will consider net profit retained in the company on top of drawn income. This is a different route from day-rate underwriting and can suit contractors with a long trading history who do not currently have a contract in place.
For contractors with retained profits, lender criteria can vary significantly. Some lenders may take a proportion of retained profit into account, while others may only consider salary and dividends. The right approach will depend on your company structure, trading history and the lender’s individual underwriting policy.
Situation: Billing £133,000 a year, drawing £52,000. High street lender offered £234,000.
Approach: Lender selected on gross-rate annualisation over 46 weeks; two years’ accounts not required.
Outcome: £490,000 agreed at 80% LTV.
Situation: Only one set of filed accounts, covering a part-year. Conventional assessment produced almost nothing usable.
Approach: A lender requiring 12 months’ contracting history rather than filed accounts.
Outcome: £355,000 at 90% LTV.
Situation: Contract ending in five weeks, new one not yet signed. Day-rate lenders needed a current contract with term remaining.
Approach: A retained-profit lender assessed drawn income plus company net profit.
Outcome: £610,000 agreed without waiting for the new contract.
Send us your current contract and we will tell you which lenders will annualise the gross rate and what you could borrow on it.
Not for contract-based underwriting. Lenders using your day rate will usually want a signed contract and a contracting history instead, though they may still ask for evidence the company is trading.
Generally not both. A contract-based lender uses the annualised contract rate; a conventional lender uses salary and dividends. Using the higher of the two is a lender selection decision.
Money drawn from your company is yours once drawn, but the drawing has tax consequences. Speak to your accountant before moving funds for a deposit.
No. Sole director-shareholder contracting companies are the norm and lenders expect them. Shared ownership of the company may require the other shareholder’s details.
No. Agency intermediation is standard in contracting and lenders are used to seeing it. Provide the agency contract.
