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Self-employed mortgages using the latest years income

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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: 5th December 2019 *

Since the credit crisis and subsequent recovery in certain sectors, the number of people setting up their own companies has increased, and with the recent increases in trade and growing activity in many industries, incomes for the self-employed are beginning to grow to new levels.

We have seen it with a range of people - tradesmen, financial service workers, contractors, and even art dealers, anyone reporting record incomes for the last financial year. As such, there is greater need for lenders to view income and affordability on a more flexible basis, particularly for those who need to borrow more than their previous year's books will allow.

Thankfully, there are one or two who will lend based on the latest year's income (net profit / salary+dividends) and the effect this can have on your borrowing limits can be significant.

  • Borrow based on the latest years books
  • Borrow with only 1 years accounts
  • Borrow if you have recently changed to a limited company
  • With bad credit
  • Up to 90% mortgage

Make an enquiry with us and we'll introduce you to an expert self-employment mortgage broker. If you’re having trouble finding a mortgage lender that accepts your latest year's accounts – let us know. An advisor can help you today!

Borrow based on your last year's income

It's often the case that self-employed borrowers struggle to obtain the mortgage they need as their income has increased.

Whether earnings have inflated in a small or a dramatic way, those looking to maximise the amount of borrowing on a self-employed mortgage may need to use specific lenders.

Most mortgages are assessed on whatever income is deemed as sustainable, and this is usually established by looking at the history of the income and working out an average figure.

How many years do you have to be self-employed to get a mortgage?

Usually two or three, as that is how many years most lenders will look at to establish your average income.

If you want a mortgage having had a large increase in income, then you can be limited by your previous year's accounts with the majority of lender. Luckily there are some who can consider lending based on your new level of earnings in the right circumstances.

Can I get a mortgage based on one year of self-employment?

Yes, but only a small number of lenders will offer you a self-employment mortgage if you can only produce one year's worth of accounts.

You can find out more in our guide to getting a mortgage with one year's accounts. We also have an article about getting a mortgage with two years' accounts, if you have been trading for longer than 12 months.

How is self-employment income calculated for a mortgage?

The way mortgage lenders assess self-employed customers' income can be different to those in full-time employment. That said, if you've been trading for at least three years and earn income from sole-trader net profit or limited company salary plus dividends, you would likely be offered the same income multiples as full-time employed professionals.

Things can become more complex for customers whose income is less straightforward (bonuses, commission, etc) or those who have less than three years' accounts. Some lenders might only factor percentage of your income into their calculations, in these circumstances.

The impact of this calculation on your maximum borrowing can be huge, as the table below indicates. Make an enquiry for a comprehensive mortgage quotation.

Borrower's income history...

Year of trading Net profit / Dividend+salary
2019 85,000
2018 40,000
2017 38,000

Assuming that all three of these lenders offer 4x income and the borrower has no other outgoings, how the lender calculates their income can make a massive difference.

Using the latest year, like lender C, compared to using an average of the last three like lender A, can mean the difference between borrowing £217,333 and £340,000 which equals a staggering £122,667 for what is exactly the same customer! That can be the difference between that dream home or the next stop-gap property.

Lender Calculation method Maximum borrowing
A Average of last 3 years £217,333
B Average of last 2 years £250,000
C Use latest year only £340,000

If you’re having trouble finding a mortgage provider that lends you enough – let us know. The experts we work with can help you today! Just get in touch by making an enquiry online.

Updated: 5th December 2019
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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 info 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.

Find out more about how we help the self employed get mortgages.

Self Employed Mortgages