Self-employed mortgages with 1 year’s accounts
When applying for a self-employed mortgage in the past, a person could simply give a statement about their earnings to the lender. This would then be used as a basis for awarding a mortgage. Since that option was removed in 2011, getting a mortgage when you’re self-employed became a little more challenging.
Regulations require mortgage lenders to establish an applicant’s proof of income. This is to show they are lending responsibly, and that the borrower is able to repay the loan. Some lenders do this by requesting three years’ worth of business accounts. However, this can be a problem if you’ve only been trading for a year.
Fortunately, there are lenders who will be willing to offer a mortgage based on just one year’s accounts. Although you will likely need to shop around and/or talk to a specialist mortgage broker, there will be deals to suit your circumstances available on the market. You just need to know how to find them.
Get in touch for a free initial, no-obligation discussion about your mortgage situation.
- Can I get a mortgage with 1 year’s accounts?
- Try our self-employed mortgage calculator
- Read our self-employed mortgage guide
- Proving your income if you have 1 year’s worth of accounts
- Can I remortgage with 1 year’s accounts?
- Self-employed mortgages using last year’s accounts
- Getting the right mortgage advice as a self-employed individual
- Frequently asked questions…
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Can I get a mortgage with 1 year’s accounts?
It is possible to get a mortgage with one year’s accounts, but it will not be as straightforward compared to you having up to three years’ worth of accounts.
Lenders that are willing to consider offering you a mortgage will typically ask for a lot more background information than just your accounts. They will be interested in the following:
- How long you have been working in your trade in total prior to being self-employed.
- Whether previous jobs have been similar to your business now.
- Your previous income level through that work.
These factors and more will play a part in the underwriting process and give a guide to your potential future income that will be used to contribute to your mortgage payments.
If you can give a bigger deposit, lenders will consider the loan-to-value (LTV) ratio to be more important, meaning you may be able to borrow on a more expensive property.
Proving your income if you have 1 year’s worth of accounts
As evidence of your self-employed income, mortgage lenders will refer to your business accounts. They will need accounts to be prepared by a certified or chartered accountant.
They are also likely to use your SA302 year-end Tax Calculation form (and accompanying breakdown) from HMRC. This will give a tax year overview of your businesses earnings[1], which is also crucial in helping a lender determine how much you can borrow.
Having both of these prepared and ready to go before you apply can speed up the application process.
A big part of how lenders decide the amount you can borrow is by looking at your income, not how long you’ve had your business accounts.
Once this has been established, lenders will typically lend between 3.5 to 5 times your annual income. However, there are a number of circumstances that will influence what you can actually borrow.
For example, if you have bad credit a lender will see you as a riskier borrower. In turn, they may not be willing to lend you the same amount as someone who has a better credit history. They do this to mitigate their risk exposure, so by not lending you as much, they won’t have as much money at risk if you were to fail to make mortgage payments.
Borrowing more than the usual multiples of annual income might be possible in certain circumstances. If you have an especially high income and can prove your repayment abilities, then it’s possible to increase borrowing.
Another way to increase your borrowing is to show a significant improvement in your business income. An example of this is if you’re into your second year of trading and are having a much better year than previously. You could then use your current figures, before they have been submitted to HMRC, to make a case to boost your borrowing.
For instance, your previous year’s income was £30,000 but you have already hit that sum after only 9 months of the current year.
You would then be able to use projected figures, provided by an accountant, as proof of a larger income.
This could make the difference between being able to borrow £150,000 (5x times £30,000) or £200,000 (5x £40,000). But remember, much will depend on an individual lender’s underwriting policies.
You will be pleased to know that you won’t be required to put down a larger deposit than anyone else if you only have one year’s worth of business accounts.
Typically, a lender will be looking for a deposit of at least 10% of the property value. Pairing this with a clean credit history from the last six years will put you in a favourable position when it comes to apply for a product.
Although, providing a larger than average deposit is a good idea and may actually end up saving you lots of money in the long run. This is because by providing a larger deposit, lenders will be more inclined to offer you lower interest rates, as you will be seen as a less risky borrower.
Therefore, even though you are initially putting down more money, the savings in interest could outweigh this in the long run.
If you want to discuss your deposit requirements as a self-employed individual, why not reach out today to organise a free initial consultation?
Can I remortgage with 1 year’s accounts?
As with obtaining a normal mortgage, it can also be possible for a self-employed person to remortgage using just one year’s accounts. A number of lenders have become more flexible in their approach and moved away from the traditional view that self-employed borrowers should have at least two or three years’ worth of accounts in order to be trusted with a mortgage.
It will also be possible to remortgage later on down the line when you have another two or three years accounts. This can allow you to borrow more if your self-employed earnings have increased in more recent years.
Self-employed mortgages using last year’s accounts
As mentioned previously, lenders typically need you to provide 2 or 3 years’ worth of accounts. However, what if you want to prove your income with just last year’s accounts and not consider previous years?
It is possible and works the same as using 1 year’s accounts. If you follow the correct steps and meet the requirements of lenders, there is no reason why you can’t do it.
As well as providing a larger deposit and getting an accountant to prepare your accounts, like we previously mentioned, there are some other steps you can take to increase your chance of being accepted.
One essential step is to ensure that your credit is in a good position. As part of a mortgage application, lenders will look at your credit history to help them determine how much of a risk you are to lend to.
If you have had previous credit issues, then a lender may not be willing to lend to you, as they are afraid that you may not be able to keep up with mortgage payments. Therefore, taking steps to improve your credit before applying can make a big difference.
Another step you can take is to consult the support of a specialist mortgage broker. Based on their knowledge, they will be able to assess you situation and finances, then determine the most suitable lenders to approach.
Different individuals’ situations and circumstances will be suited to different products and lenders. But, without the expertise of a broker it can be hard to know which lenders to approach. Therefore, using one will not only save you time, but it can also save you money, as it’s likely you will be met with the most competitive products.
Getting the right mortgage advice as a self-employed individual
At The Mortgage Centres, we understand that not everyone fits the standard mortgage criteria used by most lenders. You are likely to find much better results and more suitable products by talking to a mortgage broker. They will be able to understand your circumstances and know exactly which lenders to approach.
Fortunately, a number of high street lenders are now more open to dealing with self-employed applications. So, to discover your options and arrange a free consultation, get in touch today!
Frequently asked questions...
Yes, getting a self-employed mortgage with bad credit is possible. But much will depend on the nature of the bad credit event, and how long ago it occurred.
A few late payments on credit cards or store cards, even in the last year, might not prejudice the lender against your application. Especially if you show a strong current financial situation.
However, events like defaults or county court judgements (CCJs) within the last two years might affect a lender’s decision. In turn, you may need to provide a larger deposit to make up for this or incur a product with a higher interest rate.
You might be surprised, but there are now a few high street lenders who offer self-employed mortgages with one year’s accounts. But if you do not meet their criteria, there are a number of specialist mortgage lenders who can help you.
Some examples of specialist mortgage lenders we have used are:
These lenders are all willing to consider applications for mortgages based on one year’s accounts.
Not all mortgage brokers will have access to these specialist lenders, but at The Mortgage Centres we work with all these and others.
Due to our expertise and relationships, we also have access to exclusive products only available through these lenders. As well as trusted access to any new specialist lenders entering the market.
Fortunately, self-employed individuals will have access to the same interest rates as someone in conventional employment.
Although, there are factors lenders will look at to help them determine what rate you are offered. Lenders will take a variety of the information your provide to help them assess how much of a risk you are to lend to. They will look at things like your income, deposit size, credit history and your expenses.
From here, if you’re seen as a low risk borrower (someone who is more likely to make payments every month), then you may be able to unlock better interest rates.
However, if you are seen as more risky, due to things like a bad credit history or a lower than average deposit, you may be charged a slightly higher rate.
References
Gov.uk, Get your SA302 tax calculation (n.d.) – https://www.gov.uk/sa302-tax-calculation
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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