A Complete Guide to Mortgages for Self-Employed Individuals with One Year’s Accounts
Your property may be repossessed if you do not keep up repayments on your mortgage.
Accessing Mortgage Products and Rates with One Year’s Accounts
Self-employed individuals with only one year’s accounts have access to the same mortgage products and rates as those with longer trading histories, provided they meet the criteria of specific lenders.
Credit scores and deposits are key factors in determining eligibility, and while fewer lenders accept one year’s accounts, those that do offer comparable rates to employed applicants. Brokers can source appropriate products from lenders who are open to working with self-employed individuals, ensuring fair access to mortgage options.
What are the requirements for getting a mortgage as a self-employed individual with one year’s accounts?
As a rule, it’s not really acceptable for the majority of lenders. They want two years’ accounts and usually take an average across these, because being self-employed is very different to being employed.
However, we do have a handful of lenders that will allow one year of accounts if the case looks right. Previous experience in the role can be important.
For example, if I were employed as a mortgage advisor and then went self-employed in the same job, and I had a year’s accounts, they would probably take that. A couple of lenders that say they only take two years’ accounts will make exceptions for people with experience in the same employment.
So if you’ve been employed as a builder and then decided to start your own business, if you can prove your history within the building industry with a P60, for example, a lot of lenders will accept that.
Don’t assume that if you just have a year’s accounts you can’t get a mortgage. If you’ve got history within your industry, that will help you massively.
What is acceptable proof of income for a self-employed mortgage applicant with 1 year’s accounts? What documents do I need?
Ideally, it helps to have an accountant rather than doing it yourself. You’re going to need a tax calculation and tax year overview, which are produced once you’ve submitted your self-assessment with HMRC – or your accountant submits it for you.
As a rule, lenders average the last two years – so if you’ve earned £22,000 last year and £26,000 this year, they will add the two together and divide by two. That’s the earnings that they’ll use to calculate your borrowing capacity.
If you only have a year’s accounts they will want a bit more paperwork. They’ll probably want to see three months’ business bank statements. If you’re a sole trader running things through your normal bank account, that’s fine as well.
They want to see money going in and a healthy bank balance. If you made £25,000 last year, for the last three months they’ll look to see that the money is on track for your second year. Sometimes they may ask for six months – so be prepared and make your account look as healthy as possible.
Challenges and Alternatives for Self-Employed Mortgage Applicants
While credit history and fluctuating income may present challenges, having a larger deposit or applying with a partner can enhance eligibility. Specialised lenders, often accessed through brokers, can provide tailored solutions for individuals with limited trading history.
\Additional income sources, such as rental income or dividends, may also be considered if documented through HMRC. However, government schemes for self-employed applicants with one year’s accounts are not currently available, reinforcing the importance of working with a knowledgeable broker to navigate your options effectively.
Vulnerable Customer
We understand that from time to time our clients may find themselves dealing with circumstances which could mean they are potentially vulnerable. For example, a change in health, caring for a family member or coping with the loss of a loved one. There are many different types of vulnerability, and what makes one person vulnerable might not affect someone else. When we are vulnerable, our need for financial advice may change. However, admitting vulnerability or seeking help can sometimes feel hard.
If this is something you would like to discuss with us, please ask for a copy of our support guide or download a copy here. This guide is designed to help explain vulnerability and the ways in which we might be able to support you. If you feel any of the circumstances in the brochure apply to you, please talk to us.
