Falling self-employed profits are not the end for borrowers – Sneddon

Investment intentions are subdued and many small firms are holding back on investment watching costs and demand closely while a larger degree of global uncertainty plays out.

The EY ITEM Club forecasts UK business investment will contract by 0.2% in 2026, a downgrade from earlier expectations of growth, reflecting weak sentiment and caution among firms.

At the same time, the Bank of England continues to highlight subdued demand across the wider economy. Business owners and contractors will be feeling that acutely. Rising costs, slower consumer spending and a looser labour market create pressure on margins. Even profitable firms can experience a dip in performance as they absorb higher costs or lose contracts.

Taking a balanced view

For brokers and lenders, this signals a period of adjustment rather than decline. The self-employed sector remains resilient. Many business owners are not failing; instead, they are pausing, adapting and protecting cash flow, and a flat or weaker year does not erase years of solid trading.

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That is why mortgage underwriting for this sector must take a longer view. A single year of reduced profits, following three strong years, is not in itself a red flag. It may reflect reinvestment, higher supplier costs or a deliberate slowdown in growth plans. Looking at one set of accounts in isolation risks missing the true strength of the business.

There is also clear evidence that affordability pressure still exists across the market. In January, affordability searches on Twenty7tec rose by 42% compared with the next-highest month in the previous 12 months. Brokers are working just as hard to place cases.

Leaning into the numbers

In this environment, lenders who can properly assess business performance, sense-check the figures and repackage a case where appropriate, will stand clients in good stead. Context will always be important and a dip in net profit needs to be understood in the round, alongside turnover, retained earnings, cash reserves and forward contracts.

This is where our Income Flex option can make a difference. Self-employed borrowers with declining profits do not automatically see their options fall away. Income Flex can work with one year’s accounts or SA302s. It can accept declining profits and even a loss year, provided the overall business story and accountants’ projections make sense.

Assessing the whole business

One of our recent cases involved a limited company director who had seen profits reduce in 2025 due to higher operating costs and a cautious approach to expansion. Her salary and dividends alone were not sufficient to meet mainstream affordability checks. However, the business retained strong reserves built up over previous years. By taking a sensible view and including a share of retained profits, the true financial position was reflected and the purchase remained on track.

As we move through 2026 and into 2027, with investment expected to recover and growth to strengthen modestly, confidence should follow. Brokers will continue to see business owners who are cautious but committed. Lenders who understand how to read accounts, assess trends and look beyond a single year’s dip will be in a strong position.