Mortgage With Declining Profits
A fall in profit does not end a mortgage application, but it does change which figure a lender uses and which lenders will look at it. The explanation matters as much as the number.
- Why a lower latest year can be used instead of an average
- What underwriters want the fall explained by
- When a one-off cost can be added back
- Whether to apply now or after the next year end
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Tell Us About Your Declining Profits Mortgage Needs
Send us the last two or three years of figures and the reason the latest year fell, and we will tell you which lenders can work with it.
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A mortgage with declining profits: the arithmetic changes, not the answer
When profits rise, most lenders take an average of the last two years, and the average is lower than the latest year – so the average is the cautious figure. When profits fall, that logic reverses: the average is now higher than the latest year, and a cautious lender will use the lower latest year instead.
This is the single most important thing to understand about a declining-profit case, and it is covered in more detail on our latest year or average income page. It means the drop can hit your borrowing figure twice – once because the business earned less, and again because the lender switches to the more conservative of the two methods.
What moves an underwriter is a credible, evidenced explanation. A year with a large one-off equipment purchase, a period of illness, the loss of a single major client since replaced, or a deliberate investment in the business are all materially different from a business in gradual decline. The first four are arguable. The last is not, and it is better to know that before you apply.
Some costs can legitimately be added back. Pepper Money, for example, allows certain add-backs for applicants who own 100% of the business – including a director’s car allowance, pension contributions, use of home as office and private health insurance – though it requires finalised accounts to do so. Whether an add-back applies to your figures is a question for your accountant and the lender, not a general rule.
At a Glance
How a fall in profit is usually handled
Where a lender publishes its position we have named it. Where it does not, the row describes the general market approach rather than inventing a figure.
| Situation | Usual treatment | What helps the case |
|---|---|---|
| Latest year lower than the previous year | Most lenders move to the latest year rather than an average, because the trend is downward | A written explanation from you and your accountant, filed with the application rather than offered on request |
| One-off cost caused the fall | May be treated as an exception, but only where the accounts evidence it | Finalised accounts identifying the item, plus the invoice or contract behind it |
| Owner draws add-backs | Pepper Money allows certain add-backs for 100% owners: car allowance, pension contributions, use of home as office and private health insurance | Finalised accounts - Pepper Money states these are required for add-backs |
| Sustained multi-year decline | Assessed on the latest year, and some lenders will decline on the trend alone | A recovery evidenced in current-year management accounts and a forward order book |
| Fall caused by deliberate reinvestment | Treated case by case; not a published exception anywhere we have seen | Evidence of the investment and of the revenue it has since produced |
Criteria correct as at 14 August 2026. Add-back detail from the Pepper Money Mortgage Criteria Guide. Other rows describe the general market approach rather than any single lender policy, because most lenders do not publish a declining-profit rule. Correct as at 14 August 2026. Criteria change without notice. Lender criteria change without notice and this table is a general guide, not advice or an offer of credit. Your own circumstances, the property and the lender’s assessment at the time will determine what is actually available to you.
What to send with a declining-profit case
Underwriters are far more comfortable with a fall they can see explained in writing than one they have to ask about. HMRC guidance on allowable expenses when you are self-employed is a useful reference when working out what actually sits behind the drop.
Where to go next
The pages most often read alongside this one.
Latest Year Or Average?
The single policy choice that most often decides how much you can borrow.
Mortgage With 1 Year Accounts
Which lenders consider a single year, what extra evidence they ask for, and the LTV you give up.
SA302s Or Full Accounts
Tax calculations, tax year overviews, finalised accounts – what each lender actually wants to see.
Sole Trader Mortgage
Net profit, not turnover – and the add-backs some lenders will and will not allow.
Salary And Dividends Mortgage
The standard director assessment, and when share of net profit gives a better answer.
Mortgage Using Retained Profit
A minority of lenders will look at profit left in the company. Who, and on what terms.
Self-Employed Mortgages
The main guide: how lenders assess self-employed income, what they ask for and which lenders are worth approaching.
How Much Can I Borrow?
See what your income could realistically support before you speak to a lender.
How we place a self-employed or complex income case
Specialist lenders underwrite manually, so how the income is evidenced and presented genuinely changes the outcome.
Establish how you are actually classed
Lenders do not all draw the line in the same place. Precise treats anyone with a shareholding of 25% or more, or who is responsible for paying their own tax and National Insurance, as self-employed. Getting this right first decides which criteria apply to you.
Read the accounts the way an underwriter will
We work from your tax calculations, tax year overviews and finalised accounts rather than a rough turnover figure, because the number a lender uses is often materially different from the number you think of as your income.
Match the income shape to the right lender
Latest year or average, salary and dividends or share of net profit, one year of accounts or two – these are lender policy choices. We place you against published criteria rather than guessing.
Package the case properly
Specialist lenders underwrite manually. A clear note explaining a dip in profit, a change of trading style or a new contract usually carries more weight with an underwriter than the raw figure on its own.
Plan the next few years
Trading history builds. We look at whether waiting for one more set of accounts, or how you draw income between now and then, would open up materially better options at your next remortgage.
Read More If You Work For Yourself
How your accounts are read is only part of it. These pages cover the rest of the case.
Self-Employed Mortgage Guide
How lenders actually read accounts, day rates and dividends.
Self-Employed Mortgages
How lenders read accounts, day rates and dividends when you work for yourself.
How Much Can I Borrow?
A realistic borrowing figure before you start viewing properties.
A down year is a conversation, not a refusal
Send us the figures and the reason behind them. We will tell you which lenders can work with the latest year and whether waiting for the next year end would genuinely help.
Read more about our latest year or average income, SA302s and accounts or self-employed mortgages guide.
Mortgages With Declining Profits - Frequently Asked Questions
Can I get a mortgage if my profits went down last year?
Frequently yes, but usually on the lower latest-year figure rather than an average of the two years. The size of the fall, the reason for it and whether the current year has recovered all feed into the decision. A fall explained by an identifiable one-off is a very different case from a steady multi-year decline.
Will the lender use the average or the latest year?
Where profits are falling, most lenders use the latest year, because it is the more conservative of the two. Where profits are rising, most use an average of the last two years for the same reason. In other words the cautious figure tends to win either way, which is why a fall can reduce borrowing by more than the fall itself.
What counts as a good explanation for a drop in profit?
Something specific, evidenced and ideally finished. A large one-off equipment purchase, a period of illness, a single major client lost and since replaced, or a documented investment in the business are all arguable. Trade being quieter is not, because it does not tell the underwriter whether the situation has changed.
Can costs be added back to increase the profit figure?
Sometimes, for certain items and certain applicants. Pepper Money publishes add-backs for applicants who own 100% of the business, covering a director’s car allowance, pension contributions, use of home as office and private health insurance, and states that finalised accounts will be required. Whether your figures qualify is a question for your accountant and the lender rather than a general rule.
Should I wait until my next accounts are done?
If the current year has clearly recovered, waiting often helps, because a recovery year turns a downward trend into a dip. If the current year is also weaker, waiting makes it worse. Management accounts will usually tell you which of those two you are looking at before you commit either way.
Do management accounts help?
They can, particularly where they show a recovery that the filed accounts do not yet reflect. Aldermore lists management accounts showing sustainable turnover among the evidence it will consider for applicants with limited history, which shows the type of document has weight. They support a case rather than replace filed accounts.
Does a drop in turnover matter as much as a drop in profit?
Profit is the figure lenders assess, so a fall in profit matters most directly. A large fall in turnover with stable profit is easier to explain than the reverse, but it will still be asked about, because underwriters read it as a signal about future income. HMRC guidance on Self Assessment tax returns explains where each figure is reported, and limited company filings are visible at Companies House.
Will remortgaging be affected by a bad year?
It can be, if you need to move lender and the new lender assesses affordability afresh. A product transfer with your existing lender may not require a full reassessment. Comparing the two properly is worth doing before you assume you are stuck.
Does a loss year end the application completely?
A trading loss is significantly harder than a reduced profit and narrows the options considerably, but it is assessed rather than automatically fatal – particularly where other years are strong and the loss has an identifiable cause. Expect to need a larger deposit and a fuller explanation.
I am a director. Does taking fewer dividends look like declining profit?
It can, and this is a common and avoidable problem. If you left profit in the company rather than drawing it, the salary-and-dividends figure falls even though the business performed well. Some lenders will assess your share of net profit instead, which reflects what the business actually earned. Our retained profit and salary and dividends guides cover this.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.