Mortgages with one year's accounts

Getting a mortgage when you’re newly self-employed is  difficult because lenders want as much proof of your income as possible. Most lenders like to see at least your first year’s tax return so they can decide if you’ll be able to pay back the money you borrow from them. 

Once you’ve been self-employed for three years and have three years' worth of accounts to prove it, most lenders will be happy to offer you a mortgage if your accounts are healthy and your income is stable. But with less than that, the big lenders aren't as sure about your ability to pay them back. That’s why you’ll probably need to apply to a specialist lender. Specialist lenders don’t usually deal directly with the public - you’ll have to work with a mortgage broker (like us!) to find one and put together a good application. Make an enquiry to speak to a Mortgage Expert.

Unfortunately, many lenders will need to see three year’s worth of accounts before granting you a mortgage. A lot of people get rejected by mainstream lenders on the grounds that they don’t have enough trading history. It’s important not to give up, because  there are specialist lenders out there who’ll consider you with one year’s accounts. 

The longer you’ve been trading, the more options you’ll have. But working with a specialist broker who’ll know the specialist lenders to approach will mean you don’t waste any time approaching the lenders who’ll flat out refuse you.

Many lenders will want to see three years’  accounts from you to prove your income, or at least they’ll ask for your first year’s tax return. They do this because they need to work out how much you can afford to borrow based on your current income.

Generally, the more accounts you have, the better. If you have one year’s accounts or less, it’s a great idea to have your accounts prepared by a qualified accountant. If they can do a year-to-date overview of your income, that’ll help your case when your mortgage broker approaches lenders. So while your chances do improve with the more accounts you have, you can get a mortgage even if you’ve been self-employed for as little as nine months.

Once you’ve found a lender that’ll consider you for a mortgage with one year’s accounts, you’ll usually have to provide two things:

1. Finalised accounts from a qualified accountant to prove your income

2. A self-assessment tax return (SA302)

Read more in our Guide: What Mortgage Lenders Look for in Mortgage Applicants.

Lenders generally don’t mind what sector you’re in, as long as you can prove your income is stable and your business is viable.

The amount you need to earn to afford a mortgage completely depends on things like:

• The price of the property you want to buy

• What kind of employment you’re in

• Whether you have any credit issues

If you’re self-employed and are registered as a sole trader or you’re a freelancer, a lender will analyse your earnings by looking at the net profit of your business over recent years. 

If you’re set up as a limited company, a lender will look at your salary and dividends or share of net profit. If you’re a contractor, then your annualised day rate will be taken into consideration.

This will depend on your income and credit history. It’s the same if you were applying for a mortgage full-time employed by a company. 

Usually, the most you can borrow is the equivalent of 4.5x your income. But some lenders will stretch to more than that. 

In some circumstances, a lender might consider doing an income projection. This is an estimate based on accounts that aren’t ready yet because the business year hasn’t finished yet. For example, if you’ve been trading for a year and half, you’d have a full year’s worth of accounts, plus six months of records. 

If the most recent six months of your second year are on track to show you’ve increased your income, then a lender might consider using an income projection. If a qualified accountant calculates that they expect trading to continue like the recent six months, you could be allowed to borrow more for your mortgage.

Another thing that will affect how much you can borrow is what kind of self-employed person you are. For example, if you’re a sole trader or in a partnership, the amount you can borrow will be based on your share of the net profit from your two year’s accounts. But if you’re a director of a company, the amount you can borrow is usually calculated on the salary you take, or the dividends.

There are lots of other things lenders will look at when they’re deciding whether to offer you a mortgage. Lenders will look at:

• Your credit report: If you have any credit issues on your file that will affect the rates you can get and the amount you can borrow. 

• Your deposit: the larger a deposit you have, the more you’ll be able to borrow. 

• The property type: A property that has any issues might need a specialist lender, which limits your options a bit more.