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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 23rd February 2021*

If you’re a self-employed professional looking to get a mortgage, you may have heard that most lenders will ask you to evidence your income with at least two-to-three years’ worth of accounts. But what can you do if you haven’t been trading for that long, or can only prove your income from the last 12 months or so? Luckily, there could be options available, and in this guide, we’ll outline them for you and tell you where you can turn for the right advice. The following topics are covered below…

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Can you get a mortgage with one year’s accounts?

Yes. Like many of the people that enquiry with us, you might be reading this because you’ve been either refused a mortgage for not having enough trading history or you’re thinking of applying but aren’t sure what a mortgage lender will ask for. Either way, it’s true to say that obtaining a mortgage with less than two years accounts can be very tricky.

But the good news is that it IS possible, if you know where to turn for the right advice. This is where we come in. We run a free broker-matching service that will pair you up with a mortgage advisor whose speciality is finding lenders for self-employed customers with just one year of trading under their belts.

The following applicants CAN get a mortgage (accurate as of March 2020 & subject to status):

  • Limited company directors only trading for just 9 – 12 months. See our guide to limited company director mortgages for more information
  • Mortgages for sole traders only trading for just 9 – 12 months
  • Established businesses recently limited / changed trading style
  • Contractors working for less than 12 months
  • 9 – 12 months self-employed with bad credit
  • No income necessary for buy-to-let
  • Up to 95% mortgages with Help to Buy

How long do I need to have been self-employed for to get a mortgage?

Many lenders currently ask for three years’ accounts to prove income on a mortgage application. There are a few that may consider mortgages for those who have been self-employed for less than two years, and there are even a small number of mortgage lenders accepting one year’s accounts.

There are even a handful of options when you have only been trading for nine months – so long as you have accounts from a qualified accountant drawn up year to date, the lenders can consider offering the mortgage before the full first year is complete.

What if you haven’t finished your first year of trading?

If you haven’t completed a tax return for your first year then it’s unlikely you’ll be considered by most lenders. That said, thankfully, there are a couple of specialist lenders that can consider you for a mortgage before you’ve completed your first year trading.

Historically, mortgages without one year’s books just didn’t exist because the lender has to evidence that they have lent responsibly, and they are required to base their lending decision on tangible proof that shows you can, without doubt, afford to repay what you are borrowing.

If you don’t have an official record of the tax you’ve paid, even if you have had a cracking first six months and earned way more than you need, it’s not acceptable.

However – If you are near to the end of your first trading year, at say 9-10 months, then it may still be worth making an initial application to get the mortgage approved in principle.

  • There are lenders who are happy to offer the mortgage now, based on the figures you have,
  • And others that require a full year’s trading but would be happy to approve the initial agreement, subject to you waiting until your year is up before making the full applications.

As these decisions tend to last for three months, this will ensure that you know you can get a mortgage you’re happy with well in advance of putting an offer in on a property. The figure your mortgage advisor would use on this initial application would be whatever you anticipate earning as a net profit/salary and dividends because, at this stage, it is not necessary to be 100% accurate.

So, if you think you’ll earn 20k, then they’d key this into the system to generate a decision based on your accounts showing this figure when they are eventually complete. The credit score decision should really be the same regardless (so long as your income is not too different than your estimation) – giving you a pretty accurate result.

Occupations which are acceptable

Generally, mortgage lenders who specialise in self-employed customers are pretty flexible when it comes to the sector in which you work. As a result, almost all occupations would be acceptable provided the business is viable, trading as a going concern and income is sustainable.

This may include taxi drivers, builders, plumbers, painter and decorators, electricians and other tradesmen, musicians, landlords, those in the financial sector, retailers, those with online businesses, professionals, investors and more.

Why is it harder to get a mortgage when you’ve only been self-employed for a short time?

Because self-employed mortgages are typically harder to obtain since the lender may have difficulty establishing how much you earn, and therefore the risk of you being unable to repay what you borrow.

Generally, if you have been self-employed for longer than three years, you would be considered by most lenders in the same way as an employed applicant. If you’ve only been trading for one or two years then it is often more difficult and lenders may deem you to be more of a risk.

Gone are the days of pure self-cert mortgages, where self-employed borrowers could tell a bank what they were earning without proof, and borrow pretty much what they wanted.

Since the recession, lenders have been forced to tighten their approach and request proof in almost all regulated borrowing applications. This has impacted the self-employed market massively, and many business owners and tradesmen now find themselves struggling to find finance. With the number of start-up businesses continuing to rise, we are finding more and more customers that have recently gone self-employed looking for finance and finding it difficult without the help of a specialist broker.

What is the most you can borrow if you’ve been self-employed for a year?

Typically, self-employed applicants can borrow pretty much the same as employed applicants (depending on credit score), which is usually maxed out at 4.5x their income. In certain circumstances, those earning a higher wage are able to ‘stretch’ this to a higher level if they can prove affordability.

Very occasionally, it’s possible to ask a lender to consider an income projection based on accounts that are to be drawn up before the year has ended. For instance, if you’ve been trading for say 20 months, you should have one year’s full accounts plus nine months of the second year (depending on your tax year-end).

If the most recent year’s first eight months are on track to show a much higher annual income, and you’re looking to borrow more than 4.5x the previous year’s earnings – then, depending on the strength of the rest of the application, a mortgage underwriter may consider using a qualified accountant’s projection and lend based on the anticipated income for the unfinished year.

For example…

Net profit Dec 2018- Dec 2019 = 22,000 Net profit Dec 2019 – Aug 2020 = 25,000 An accountant (depending on viability) may calculate that trading is likely to continue in line with the previous nine months. Therefore 25k / 9 months = £2.77kpm. £2.77kpm spread over 12 months would be approx £33.3k for the year.

A lender considering the 33.3k lending at 4.5x income would equal approx. a £150k mortgage, whereas if they only accepted the finalised accounts the max would be much less.

It is important to note that it isn’t always this straightforward and there is usually a lot more work involved getting to a decision, but it is possible to get a mortgage based on one year’s accounts if you apply through the right broker.

What income evidence is needed?

Any mortgage lender that will accept one year’s accounts may require a different form of income proof, but will likely need you to evidence the income through a qualified accountant reference, finalised accounts, or a self-assessment tax return (SA302). You would still be subject to the same income multiplier rules as any other applicant (generally a maximum of 4.5x income).

Which figure is used to calculate my income?

Whether you have one year or 10 years’ accounts, the figure used is the same. For those looking for a sole trader mortgage or working in a partnership, the figure is either your share of the net profit when using accounts, or the ‘total income received’ on a self-assessment tax return (SA302’s).

With mortgages for limited company directors, it is the directors’ salary and dividend received as stated on the accounts or reference.

Remortgaging with one year’s accounts

This is possible and remortgaging comes with the same stipulation as for main purchase mortgages – you need to have been trading and have one year’s books signed off by an accountant (Ltd companies) or submitted to HMRC (self-assessment).

Applying for your remortgage through a broker who specialises in self-employed customers with limited accounts can boost your chances of finding the best available deal.

FAQs

Have a question about getting a mortgage with less than two years’ accounts that we haven’t covered above? Take a look through or FAQ section to see whether it has the answer you need.

Can I get a one-year self-employed mortgage with bad credit?

Yes, bad credit mortgage lenders that consider applicants with one year’s books and credit issues do exist, but with some restrictions. Currently, you would be required to have at least 15% deposit (15% equity if you want to remortgage with bad credit), and no defaults, CCJ’s, mortgage arrears in the last 2 years.

If you had missed /late payments on credit in the last 12 months you still may be considered, and often any issues with mobile phone companies are ignored.

Can I get a Help to buy mortgage with only one year’s accounts?

Yes. If you have one year’s accounts you CAN get Help to Buy scheme assistance and buy with just a 5% deposit (subject to credit score and usual criteria). There are very few lenders considering self-employed Help to Buy mortgages, but they do exist and often have very attractive rates.

Speak to a mortgage broker who specialises in self-employed customers

If you’re having trouble finding a mortgage lender that accepts one year’s accounts – let us know! We work with experts that can help you today!

Through our free broker-matching service, we will pair you up with a mortgage advisor who has the right expertise for your needs and circumstances. Call us on 0808 189 2301 or make an enquiry to get started.

Remember, speaking to the right mortgage broker could help you save time, money and potential disappointment in the long run, and our no-obligation service will make sure you find the advisor who’s the best fit for you.

Updated: 23rd February 2021
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.