Yes, it’s possible. But it’s not easy. Most high street lenders ask for two or three years of self-employed accounts. With only one year, your options are narrower. You’ll likely need a specialist lender.
In this article we’ll explain why lenders are cautious, what you can do to improve your chances, and how to find the right help. For more background on how lenders assess self-employed applicants, read our guide on self-employed mortgage criteria.
Why is it difficult to get a self-employed mortgage with only 1 year’s accounts?
Lenders need to know your income is stable. One year of accounts gives them very little to go on. They cannot see a trend. They don’t know if your income is growing, flat, or about to drop.
With two or three years of accounts, a lender can average your income. They can spot patterns. One good year followed by a poor one tells a different story from three steady years.
Most high street banks and building societies have strict rules on this. They simply won’t process applications with less than two years of trading history. That doesn’t mean no lender will consider you. It means the pool of lenders is smaller.
How much can I borrow?
This depends on what income figure the lender uses and their standard income multiple. Most lenders offer between four and five times your annual income. Some will go higher in the right circumstances.
How your income is calculated depends on how you trade. If you’re a sole trader or a partner, lenders usually use your net profit figure from your tax return. If you’re a limited company director, they typically use your salary plus dividends. Some lenders also consider retained profit inside the company.
With only one year of accounts, many lenders will use that single year’s figure without averaging. If that was a strong year, this can work in your favour. If income varies during the year, you should be prepared to explain that.
How to get a self-employed mortgage with 1 year’s accounts
Proving your income
The key document for self-employed mortgage applications is the SA302. This is your tax calculation, produced by HMRC after you submit your Self Assessment Tax return. You’ll also need your Tax Year Overview, which confirms what was submitted and paid.
Some lenders accept documents prepared by an accountant instead. But HMRC documents carry more weight. Make sure they’re complete and up to date before you apply. Find out more about what counts as self-employed proof of income.
Get an accountant
A qualified accountant can make a real difference. They can prepare accounts in the format lenders expect. They can also help you structure your finances to clearly show your income.
If your accounts are not yet finalised, get them done as soon as possible. Lenders need a complete picture. Unfinished or informal records aren’t enough.
A bigger deposit means less borrowed
The more you put down, the less risk a lender takes on. A larger deposit reduces your loan-to-value ratio (LTV). This can open up more products and may make a lender more willing to consider a one-year trading history.
If you can reach 75% LTV or lower, your options tend to improve. Some specialist lenders will consider one year of accounts at this level, where they would not at 85% or 90%.
How to get a self-employed mortgage
The process is the same as for any mortgage. You apply; the lender assesses your income and the property, and they make an offer. The difference is in the documents you need, and which lenders will consider you.
Working with a specialist broker is the most effective way to find the right lender for your situation. A broker who deals with self-employed cases will know which lenders are flexible on trading history, and which aren’t. This saves you time and protects your credit file from rejected applications.
Our guide on how many years self-employed to get a mortgage covers the standard lender expectations in more detail.
Will a lender actually class you as self-employed?
Not everyone who works for themselves is classed as self-employed by a mortgage lender. The lender’s definition matters.
As a general rule, if you own 25% or more of a business, lenders will treat you as self-employed rather than employed. This is true even if you pay yourself a salary through PAYE.
Freelancers
Freelancers are usually classed as self-employed by mortgage lenders. If you take on project work and invoice clients, you’re likely to be assessed on your accounts and tax returns in the same way as any self-employed applicant.
If you work through a limited company you own, lenders will look at your salary and dividends, and sometimes your share of the company’s retained profit.
Agency and ‘umbrella’ workers
Agency workers and umbrella company contractors are often in a grey area. If you’re paid through PAYE via an umbrella company, some lenders may treat you as employed. Others will look at the nature of the contract and treat you as self-employed.
This depends on the lender and the structure of your work. A broker can advise which lenders are most suitable for your specific setup.
Boost your mortgage chances
There are practical steps you can take before you apply:
- Check your credit report. Look for errors and fix them before you apply. Missed payments, defaults, or CCJs will affect what’s available to you.
- Reduce your debt. Paying down credit cards and loans before you apply reduces your outgoings. Lenders take your existing debt into account when working out how much you can borrow.
- Keep your accounts clean. Large personal expenses run through a business account can reduce your declared profit. Speak to your accountant about this before applying.
- Register to vote. Being on the electoral roll helps lenders verify your identity and address. It’s a simple step that can improve your credit score.
- Save a bigger deposit. As above, a lower LTV gives you access to more lenders and better rates.
Get your paperwork ready
Most lenders will ask for the following:
- SA302 for the last one to three tax years
- Tax Year Overviews from HMRC
- Three to six months of personal bank statements
- Three to six months of business bank statements
- Proof of identity and address
- Accounts prepared by a qualified accountant (some lenders require these to be certified)
What if I’ve not been self-employed for long?
If you’ve been self-employed for less than a year, your options are very limited. Most lenders, including specialist lenders, require at least 12 months of trading before they consider an application.
If you’re approaching that twelve-month mark, it may be worth waiting until you have a full year of accounts before you apply. Applying too early and being declined can affect your credit file.
Some lenders look at prior employment in the same field. If you were employed as an accountant for ten years and recently went self-employed as an accountant, some lenders view that more favourably than someone who switched to a new area entirely.
Is it worth paying for a specialist broker or lender?
Yes, in most cases. With only one year of accounts, you’re outside the standard lending criteria. The products available to you aren’t always on comparison websites. You’re unlikely to find them by applying directly to a high street bank.
A specialist broker knows which lenders consider one year of trading. They can match you to the right lender before you apply. This protects your credit file from hard searches that go nowhere.
Brokers are paid either by the lender or through a fee to you. In either case, the advice and access to the right products usually outweigh the cost.
Final thoughts
Getting a mortgage with one year’s accounts is harder than with two or three. But it’s possible with the right lender and the right preparation.
The key steps are simple. Get your accounts in order. Use an accountant. Save as large a deposit as you can. And work with a specialist broker who knows about this market.
Pepper Money works with specialist brokers who understand self-employed mortgage applications. You can find a broker through us today.
This article is for general information only. It is not financial advice. Your circumstances will affect what is available to you. Always speak to a qualified mortgage adviser before applying.