Mortgages with One Year Accounts

It’s a common misconception that Self-Employed people must have at least two years’ accounts to be considered for a mortgage. In fact, various mortgage lenders will accept you with just one years’ accounts. These days Self-Employed mortgages are straightforward to find and apply for, especially if you have a broker on your side. 

Can I get a mortgage if I’ve only been Self-Employed for one year?

The reason why mortgage lenders want to see your accounts is to understand what your income is. Your earnings help the lender decide how much mortgage to offer you – they will usually lend around four to five times your salary. 

When you are Self-Employed your income can be variable, so lenders like to have more evidence of how much you earn through your business. As a result, mortgage providers often like to see two years’ worth of accounts, sometimes more.

Certain specialist lenders will accept just one years’ accounts, however, and some will even take 9-10 months’ records if your business is doing well. 

How do I prove my income with only one years’ accounts?

Lenders ask for a few documents to prove your income. They usually need your self-assessment tax return (SA302) as this states your annual earnings, and they often request a set of accounts that are certified by a qualified accountant. The accounts should include full financial details including profit, loss, salary and dividends. 

Your credit score is also an important part of the lender’s assessment. Bad credit problems in the past six years can make it harder to find a lender, and you can expect to pay higher mortgage rates which in turn will increase the repayments on your mortgage. 

How does it work for a Sole Trader, a partnership or a Limited Company?

When you’re a sole trader there is no legal separation between you and your business, so your business profits equate to your income. 

In a partnership, lenders take your income as your share of the profit. In some cases, this means people cannot borrow as much as they were hoping for.

If you run a limited company, the mortgage provider will look at your accounts. Often they will base your loan amount on the stated salary and dividends – but some lenders will also include your net profit. If, like many directors, you pay yourself a low salary this usually means you can borrow more.

How much can I borrow?

Lenders usually offer you around four to five times your income. A mortgage calculator will help you work out the total amount – just input the annual income from your self assessment forms. Make sure that you can comfortably afford your monthly bills as your home may be repossessed if you cannot keep up the repayments on your mortgage.

Many Self-Employed borrowers take out an income protection policy alongside their mortgage. This is a form of insurance that provides a monthly payment if you cannot work due to sickness or injury. It is an important consideration, as there is no sick pay for the Self-Employed.

What deposit will I need?

It’s possible to buy a property with just a 5% deposit, but you will need good credit for this kind of high Loan to Value mortgage. If you can contribute a deposit worth 15% or more, you will gain lower rates and a broader choice of lenders. The higher your deposit, the smaller your monthly mortgage repayments.