Self-Employed Mortgages with One Years Accounts

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Podcast approved by The Openwork Partnership on 20/06/2024

Self-Employed One Years Accounts (Part 1)

Lee from Mortgages by McAteer is here to explain how mortgages work if you’re self-employed with one year’s accounts. Episode one of two, recorded in May 2024.

What are the requirements for getting a mortgage as a self-employed individual with one year of accounts?

First of all, you’ve got to have been trading for a year and have a full year’s accounts, whether that’s the tax year of April to April, or you’ve got your completed accounts from an accountant.

As long as you’ve been trading for a year and you can prove your income – whether that’s net profit or salary and dividends – there are lenders that will consider that income.

What is considered as acceptable proof of income for a self-employed mortgage applicant with one year’s accounts? What documents do I need to gather?

To make it really clear for a lender we need your SA302s or your tax calculations. If you’re a sole trader, that’s going to have your net profit income on it. If you have a limited company and you’re paying yourself a salary and a dividend, that’s also there.

If you have any rental income, that will be on the tax calculation as well, and if you’re using accounts, those will show your net profit for the year. For a limited company, some lenders will use your salary and your profit from the accounts, if you’re not taking all your profits out as a dividend. Many company directors choose to leave them in the business to help with tax.

Do self-employed individuals with one year of accounts have access to the same mortgage products as those with longer accounts?

The short answer is no, because only certain lenders accept self-employed individuals with a year’s accounts. There’s still enough choice to find a favourable deal for a purchase or a remortgage. There are definitely options available – just not as many as you would have if you had two or three years’ accounts.

How do lenders assess the affordability of a mortgage for self-employed individuals with one year of accounts?

They’re going to look at your tax calculation or your finalised accounts for that year. Lenders also tend to want to look at what you were doing previously. Were you in the same line of work on an employed basis?

They may also want to look at your P60s for proof of income to make sure it’s sustainable. If you’re earning £50,000 or £60,000 now as a self-employed individual, we need to see what you were earning when you were employed, to see if it’s likely to continue.

Are self certification mortgages available for self-employed individuals with only one year of accounts?

No. They were outlawed quite a few years ago. You can’t just tell a lender what you could be earning and it not really being true. So no, there’s no self certification available now.

What interest rates can I expect as a self-employed mortgage applicant with one year of accounts?

You’re not going to be penalised, as such. There are just not as many lenders out there. It just depends on your credit scoring for the lenders you can go to. Some high street lenders will allow you to proceed with one year’s accounts, so these will be the first lenders that we look at to get you a mortgage deal.

Do any mortgage lenders specialise in mortgages for self-employed individuals with one year of accounts?

Many lenders will do it. Whether you’ve got adverse credit or good credit, there are different options available to you.

If you’re in a professional role, you may have access to even more lenders- and that can help with affordability.

What other considerations should self-employed individuals make when applying for a mortgage with one year of accounts?

Lenders are just going to look at you in more detail. They want to make sure that your income is sustainable. They may look at your last three months personal and business bank statements, to check the income you’ve earned that year is still consistent over the last three months.

It’s a good idea to look at your bank statements to make sure the income is going to look sustainable to a lender.

How long does the mortgage application process usually take for someone that’s self-employed with one year of accounts?

It’s no different to a normal application. We’re going to package a case, send it to a lender and they’re going to look at it within normal timeframes.

Is it beneficial to work with a mortgage advisor for a mortgage as a self-employed individual with one year of accounts?

Yes. If you’re going to approach your bank, for instance, and they don’t offer mortgages for one year’s accounts, which is the next lender to try? You can end up going to many different banks and building societies to find a mortgage deal.

There are some lenders that only mortgage brokers can access, which helps you have a good choice of lenders and products. It’s definitely worth speaking to a mortgage broker to help you find a deal and, hopefully, save money.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Approved by The Openwork Partnership on 20/06/2024

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Podcast approved by The Openwork Partnership on 21/6/2024

Self-Employed One Years Accounts (Part 2)  

Lee joins us to continue the conversation on self-employed mortgages for applicants with one year’s accounts. Episode two of two, recorded in May 2024.

Can I apply for a joint mortgage with a partner who has regular income even if I’m self-employed with one year’s accounts?

Yes, you can – and it can boost your affordability to use another income. We need to make sure the lender we’re proceeding with is going to accept one year’s accounts, but having another income on the application is only going to help affordability. It can help you buy a bigger home or help you get the remortgage that you need.

Are there any specific challenges or risks for the self-employed when applying for a mortgage with one year of accounts?

It’s just that you will be restricted with the number of lenders you can access. It’s about getting the right deal available to you.

What happens if my one-year accounts show low or fluctuating income – can I still qualify for a mortgage?

A low income is going to restrict the amount that you can borrow. Your income may be fluctuating compared with your employed income, but as long as it’s plausible it potentially can be used. 

Lenders aren’t really going to look at your month by month income. They look at what  you’ve earned over the year. They will also look at your bank statements for the last three months, to make sure you’re on track to earn the same as over the full 12 month period.

What impact does credit history have on the mortgage process for self-employed individuals with a year’s accounts?

The pool of lenders is smaller when you have one year’s trading. If you’ve also got poor credit, that pool will be even smaller still, so it’s just going to be more difficult to obtain a mortgage. But it’s not impossible – far from it.

Are there any alternatives to traditional mortgages that may be more suitable for self-employed individuals with one year’s accounts?

Not really, no. You’re just going to go to high street lenders and intermediary only lenders. There’s no specific lender for one year’s accounts. Different lenders have their own criteria on what they accept or won’t. But you will still be having a traditional mortgage, as such.

Can I use additional sources of income such as rental income from properties or dividends when applying for a mortgage as a self-employed individual with one year of accounts?

Absolutely. You can use rental income, dividend income, universal credit, child maintenance, or  child benefit. It can be made up from various sources to get you the borrowing amount you require.

Is it possible to make overpayments or pay off a mortgage earlier as a self employed individual with a year of accounts?

Yes, absolutely, and it’s something we encourage our clients to do. Most lenders let you overpay by 10% of the mortgage balance per year. Some allow more, some slightly less. 

But if you can pay off your mortgage earlier, you’re going to save interest over the term of the mortgage. You just have to check your individual deal to make sure you’re not going to pay an early repayment charge. 

The lenders often have this in place within a fixed rate period, where you potentially have a penalty if you exit early or repay more than your annual limit. That’s something to check in your mortgage terms and conditions.

Can I get a Buy to Let mortgage with one year’s accounts?

Absolutely. Again, it’s going to be based on lender criteria, but it is possible.

What steps can I take as a self-employed individual to increase my chances of securing a mortgage with one year of accounts?

The main thing lenders want to look at is whether your income is sustainable. You’ve got a year’s accounts, but lenders really want to look over two or three years’ accounts for the self-employed. 

They look at the year before, whether you can prove your income and if it’s stayed level or if there’s a reason why it’s gone up. Having your bank statements available will help, and making sure that the income that you’ve submitted is still coming in on a monthly basis. 

That puts the lender’s mind at rest that you are going to be able to afford the mortgage now and in the future. So just try to get your ducks in a row and speak to a mortgage broker as early as possible. 

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY. 

Approved by The Openwork Partnership on 21/6/2024

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.