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Self-Employed Mortgage With One Year’s Accounts
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Rita Kohli
Job Title: Managing Director
Starting out as self-employed can give you greater freedom and control over your career, but when it comes to getting a mortgage, having just one year of accounts can raise a few questions. You may be wondering whether you are eligible, how lenders will assess your income, and whether you need to wait before taking the next step.
At Mortgage Stop, we regularly speak to self-employed applicants in exactly this position. Our aim is to make the process easier to understand, explain what lenders are likely to look for, and help you feel more confident about your options.
In this episode, Rita Kohli answers some of the questions we hear most often from people with one year of accounts. Rita covers everything, from the deposit you may need and the importance of your previous employment history to how your credit record could affect your application.
We also look at the paperwork your accountant may need to provide and consider whether applying now could be an option, or whether waiting until you have two years of accounts could be more suitable.
Can you get a mortgage with only one year of accounts, and which lenders allow it?
You can potentially get a mortgage with just one year of accounts, although your choice of lenders will be limited. Lenders will look closely at what you were doing before your year of trading began.
For example, if you were employed as an electrician and decided to go self-employed in the same line of work, this gives your application more stability and credibility. You already have the experience and qualifications, meaning you are not starting completely from scratch.
You may also already have an existing client bank that you were working with previously. This background helps to support the stability and growth of your income.
| Factor | One year of accounts | Two years of accounts |
|---|---|---|
| Choice of lenders | Limited, though some high street banks may consider it | Potentially more lenders |
| How income is shown | Based on one year of figures | An average of two years of income |
| Rates | Often higher than high street banks | Potentially lower rates |
| What helps your case | Previous experience in the same trade | Showing your business has been sustainable |
Every lender has its own criteria, so your position may differ. Your home may be repossessed if you do not keep up with your mortgage repayments.
Do you need a bigger deposit or pay a higher rate with one year of trading?
Potentially yes, although some high street banks can consider one year of accounts. This depends on your line of profession and whether you were employed in the same profession or decided to completely change angles and go self-employed.
Using some lenders can also mean you will face higher fees and higher rates. Because the risk is much greater, there is an expectation for you to put down a bigger deposit, which could be anywhere between 20% and 25%, or maybe even more.
Is it worth waiting for a second year, and how do you decide?
If you already have one year of accounts ready and you are six months into the following year, it is only another six months that you have to wait before you produce your second year’s. It is worth getting the advice, knowledge, and a plan together. By the time you have your second year accounts, you then have an average of your income.
This gives you more credibility to show how sustainable your business has been. It potentially means more lenders and also lower rates, which means more affordable mortgage repayments.
What deposit do you need with only one year of accounts?
The minimum deposit you might need with a lender is 15%. This will depend entirely on what your one year of accounts actually looks like.
If they feel you are in a higher risk category, because they are unsure which way your income will sway, you may need more. I would say you should be prepared for a 20% to 25% deposit.
Does previous employed experience in the same trade help a one-year case?
Yes, it certainly does, because you have to look at it from a risk perspective. You are already in the trade and profession, so you completely understand it and hold the right qualifications and accreditation. Going self-employed gives you that level of experience for people coming to you for your particular skill or trade.
It also helps us as advisers to put a business plan together. This allows us to show the background journey and the stability of your income.
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Can you get a mortgage with one year of accounts and a small credit issue?
You can, but speaking to an adviser can help ensure you’re taking the right approach. It will depend on what the credit issue was, how long ago it occurred, and whether it has since been satisfied or is still outstanding.
Each lender will have its own rules around any outstanding debts that are due, the amounts, and what it was for. This includes looking at the specific facility, such as a credit card or a loan that you may have taken out.
It is all about doing a deep dive of your credit file. We then look at your accounts and your backstory as to what you were doing before you were self-employed.
Can you remortgage onto a better rate once you have two years of accounts?
Having two years of accounts does not provide a guaranteed yes, because it depends entirely on how your income has performed. However, if you can show an upward trend in your growth and net profits, you gain far more credibility as a borrower.
This stronger financial picture means you look like less of a risk to lenders. As a result, you may have access to a wider range of high street lenders, potentially giving you access to more variable rates which may help to reduce your monthly repayments.
Building equity in your property also helps when you are looking to remortgage. While it is not a single clear “yes” answer, reaching this point certainly helps towards that positive step.
What exactly does the accountant need to provide?
Your accountant will be able to provide two years’ worth of SA302s (Self-Assessment Tax Calculations), or just one year if that is all you have. They give you a breakdown of all the income you have made, along with your outgoings, expenses, and bottom line net profit.
After taking your tax allowances into account, the document will show at the bottom what tax you actually owe to HMRC. Alongside this, you will need two years’ worth of tax year overviews.
The tax year overview determines what tax you have actually paid for that year. It also makes sure that you do not owe HMRC any further funds.
Are the rates much higher with one year of trading?
Rates can be much higher because, as I mentioned earlier, it comes down to your deposit amount. You can start off with a 15% deposit, but if it goes up to 20% or 25%, the interest rates may be similar.
They tend to be higher than the high street banks, and you should also be prepared for the fees to be much higher than the average high street lender.
How does a broker present a one-year self-employed case?
There are two key areas we consider. Firstly, we need to understand your profession and your previous experience, including whether you were employed beforehand and how quickly you moved into self-employment. Secondly, we’ll look at whether you already have an established client base or existing relationships with other business partners.
This shows how you gain more clients and maintain a sustainable number of them. How you operate your business helps us package a case study to show your credibility.
It certainly helps if you have the money behind you for a deposit and a good credit file. These factors will all strengthen your case.
You can speak to your accountant if need be to get a better understanding of your projections. Lenders do not accept projections anymore, but they will still give us some idea of your credibility.
Summary
Getting a mortgage with only one year of accounts is entirely possible, and our team is here to help you navigate the process. While your choice of lender might be limited and you may need a larger deposit, having previous experience in your trade can make a big difference to your application.
Whether you are worried about your deposit size, previous credit issues, or what documents your accountant needs to provide, our advisers can guide you every step of the way. We take the time to look at your full backstory and find the right lender to match your current situation.
Key Points
- It is possible to get a mortgage with just one year of accounts, but not all lenders will consider applications on this basis.
- Having previous experience or working in the same line of work before going self-employed gives your application more stability.
- You should be prepared to save a bigger deposit, usually between 15% and 25%, and expect higher interest rates and fees.
- Small credit issues can still be considered, but our advisers will need to do a deep dive into your credit file to find the right lender.
- Your accountant will need to provide your SA302 tax year calculations and tax year overviews to prove your income and tax history.
- Our team can help put together a strong business plan and present your case to lenders to give you a chance of success.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
FOR SPECIALIST TAX ADVICE, PLEASE REFER TO AN ACCOUNTANT OR TAX SPECIALIST.
