Mortgages with One Years’ Accounts

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Mortgages with One Years’ Accounts

Mortgage with One Years Accounts

Paul Holland talks us through mortgages with one year’s accounts.

To find out more, listen to our podcast below

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

Yes you can. There are definitely lenders out there who will accept applicants who only have one year’s accounts for their business. It’s important to caveat that though – you’ll need to have been self-employed for 12 months. Some people might think having one set of accounts means they can submit a partial year, which isn’t the case. 

As long as you’ve been self-employed for 12 months and have that first set of accounts then there are a handful of lenders that will even offer competitive rates.

How do I prove my income with one year’s accounts? 

If you’re being assessed as a self-employed person, there are different headings you might come under. 

The most common is a sole trader, in which case you will need an SA302. This is a document that HMRC will provide to you once you submit your first set of accounts. It’s also known as a tax calculation or a tax computation. These are all the same document and they all come with a corresponding tax year overview document. It’s almost like a bill and then a receipt – the SA302 being the bill and the overview the receipt. 

If you’ve got a limited company you will need those things but also a set of company accounts. If you’re a contractor you’ll need a copy of your current contract and probably the previous one. You might be paid through an umbrella company,  in which case you may receive monthly pay slips – you’ll need to supply these too.

How much can I borrow with one year’s accounts?

The lender is going to arrive at a number that’s very similar to what they’d offer if you were employed. Lenders look at that yearly income figure to calculate affordability. 

As a rough indication, you will usually be able to borrow around four and a half times your income. Then, that overall loan is going to be chipped away depending on various factors – things like your other commitments, dependants, monthly expenditure, your age and things like that.

Can I remortgage with one year’s accounts?

A property purchase with one set of accounts is going to be treated exactly the same as a remortgage with one year’s accounts. There’s no difference. 

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

Unless you complete before March 2023, you’re not going to be able to use the current Help to Buy scheme as it’s coming to an end. If you are looking at a property that’s already built and you’re ready to buy right now, that’s the only way you will be able to access Help to Buy. 

Still, the answer is yes – a lender will consider you. They will assess your income from a self-employed perspective and then apply it to the Help to Buy application. But the scheme is expiring in March next year so there’s a good chance you won’t make the cutoff.

If I have bad credit can I still get a mortgage with one year’s accounts?

People might have experienced issues around their credit situation over the last couple of years with various things going on in the background. So we’re seeing a little more lenience from lenders. People may have missed a payment or two during Covid times. 

Generally criteria like being self-employed or having bad credit are assessed separately from one another. There are lenders out there that will lend to people with one set of accounts who are also lenient when it comes to credit issues. So it doesn’t mean that you’re going to struggle. It’s really going to depend on the details.

Are there many lenders that offer mortgages with one year’s accounts?

There are somewhere between 10 and 20 lenders that wouldn’t say no to you just because you’ve only got one set of accounts. Halifax is a big high street bank with competitive rates, and its current criteria states that you can apply for a mortgage with one set of accounts. 

So there are a fair few lenders out there and a handful of those are going to be competitive as well. That means you’re not necessarily having to go to a lender with a much higher rate just because you’ve put one set of accounts – which is obviously a positive.

How do I apply for a mortgage with one year’s accounts? 

It’s really important for you to speak with a broker that knows what they’re talking about. There are over a hundred different lenders, less than 20 of which are going to accept people with one set of accounts. 

You’ll want to achieve the most competitive rate within those – and generally speaking people bring more than one criteria glitch to the table, as well. By the time we’ve gone through a fact-find with you to understand your situation there might only be three or four suitable lenders to approach. 

It’s so important to pick the right one – and the best way to do that is to speak to someone that specialises in that arena, which is exactly what we do. We specialise in that self-employed world.

A final point for self-employed people is to make sure you are well prepared. Most people will know if they’re expecting to go self-employed at some point in the near future. It might be worth having a chat with a broker at that point, especially if you might be looking to get a mortgage in the next year or so. 

You might well have a mortgage that’s coming to an end – if you think you might jump to a new lender at that stage, timing is key. You can coordinate things to make sure you’ve got your accounts ready and have spoken to your accountant. That way you will have an easier time when it comes to your mortgage.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Speak To An Expert

Our highly experienced Advisers are ready to help you with either buying or remortgaging a home, protecting your property and lifestyle along with saving you time and effort, ensuring you have a competitive deal right for you.

Mortgages with One Years’ Accounts

Mortgage With One Years Account (Part 2)

Paul continues the conversation on applying for a mortgage if you are self-employed with one year’s accounts. Episode two of three, recorded in August 2024.

Can I apply for a joint mortgage with a partner who has regular income, even if I’m self-employed with one year of accounts?

As we’ve already explored, you could apply for a mortgage with one year’s accounts as a sole applicant. If you add a partner to the mix with a regular income, as well as your one year’s worth of accounts, that’s going to improve your chances of success.

Likewise, if you have a partner with a regular income, you could apply for a joint mortgage even if you had no proof of income whatsoever.

The real question is, how much of your income will the underwriter use towards your mortgage application – and what borrowing potential does that give us? It’s a case of bringing all of your income to the table and letting that be assessed. A broker will tell you very accurately what the outcome will be once you apply.

But any income you could effectively evidence will go towards the application. The key in evidencing income is whether you’re paying tax on it, or if the government’s giving it to you as a benefit. In either case, there’s a good chance that you’ll be able to use that towards an application.

Are there any specific challenges or risks that self-employed individuals face when applying for a mortgage with one year of accounts?

The main challenge for people with such a short period of time of trading, is record keeping and production of evidence. Any underwriter willing to entertain a mortgage for someone that’s got one set of accounts will need a solid case in front of them.

They will look for correctly submitted accounts to HMRC, good conduct on your bank statements and a sustainable business model. They tend to like it if you’ve come from the same industry and started up a business in that sector, plus, they prefer a good credit score.

Another challenge is that there are limited lender options. Not all lenders entertain self-employed applicants with one year’s accounts. Most need two and even three years’ records. Because you’re working with that smaller pool of lenders, any additional complications to that scenario will further reduce the options. That could make it quite tough to get the outcome that you’re looking for.

That leads on to the third challenge or risk for a self-employed applicant with one set of accounts – being exposed to higher rates or higher fees from the lender.

If you whittle your options down to three out of 100 lenders, there’s a strong chance you’re not going to be getting the best rates. If you have to go to a specialist lender because of your particular setup, you could be looking at less than ideal rates, bigger fees and potentially larger deposit requirements.

What happens if my one-year accounts show low or fluctuating income? Can I still qualify for a mortgage?

You could qualify for a mortgage with any amount of income, whether that’s with one set of accounts or not. How much you could borrow will really depend on the bigger picture. What other income from other sources or other applicants is going towards the application? What commitments and expenditure are going to be factored in?

The more income that goes into the calculator, the bigger your borrowing potential. But the commitments that go in will bring that maximum loan down. It really does depend on both of those elements. But as soon as you’ve got one year’s worth of accounts, you could successfully apply for a mortgage.

What impact does credit history have on the mortgage application process for self-employed individuals with one year of accounts?

Credit is normally looked at in isolation. It’s either going to be an acceptable credit score or it will be declined, based on your particular scenario. How they arrive at that decision is lender-specific.

Some lenders need better scores than others, because they are high street banks and tend to offer better rates. Whether they move those requirements specifically because of factors like self-employment or having one set of accounts is not something they advertise. Some lenders may, some lenders may not. We can’t be sure.

What is advertised, however, and obvious in the market, is that those requirements move because of deposit size and the overall Loan to Value of the case. The smaller the deposit, the more likely they’re going to need a better credit rating. The larger the deposit, the more lenient they’re likely to be around credit score.

Hopefully that gives some background to the thought process for underwriters when they’re looking to assess cases like this.

Is there anything else we need to cover off before part three?

Having one-year’s accounts is of the more ambiguous areas, because it could range from someone who’s started a business in a brand new industry with zero profits, to someone who’s run a business for 20 years and has started a new company in the same industry that has £1 million turnover and £800,000 profit.

It really is granular on such a level that it’s best to speak to a broker. Most people don’t even know you could get a mortgage with one set of accounts. People often think you need three years’ records.

It’s just a case of being mindful of that and speaking to someone who could give you the correct advice and steer you in the right direction.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Tax treatment varies according to individual circumstances and is subject to change.

Speak To An Expert

Our highly experienced Advisers are ready to help you with either buying or remortgaging a home, protecting your property and lifestyle along with saving you time and effort, ensuring you have a competitive deal right for you.

Mortgages with One Years’ Accounts

Mortgage With One Years Account (Part 3)

This final episode concludes our podcast on mortgages for the self-employed with one year’s accounts, with Paul. Episode three of three, recorded in August 2024.

Are there any alternatives to traditional mortgages that may be more suitable for self-employed individuals with one year of accounts?

There are misconceptions around having one year’s worth of accounts for the self-employed. People think it’s a bad thing, or it’s a deal breaker, so they need to source alternatives to a traditional mortgage. 

But one year’s worth of accounts isn’t a deal breaker. There are a handful of lenders that will entertain people in that situation. If you were to do something alternative or not traditional, generally speaking, it will come with a more expensive price tag. 

So don’t seek out those things unless you have to. I don’t really know what those alternative products are or what they would look like. You can get a mortgage with your one set of accounts with a couple of high street lenders, and some less competitive lenders.

Ultimately, the devil is in the detail. How much do your accounts show, what’s your situation and how’s your credit? Those things are all going to come into play. Having just one set of accounts isn’t anything dirty or challenging. We get mortgages in this situation all the time, so have a chat with a broker before you start searching for alternative or non-traditional mortgages.

Can I use additional sources of income, such as rental income from properties or dividends, when applying for a mortgage as a self-employed individual with one year of accounts?

Yes. Generally speaking, if you pay tax on an income, there’s a good chance that it can go towards your mortgage affordability. The key really is to declare it. 

If you’ve got income from a rental property or as cash, as long as you’re declaring that to HMRC, it can be evidenced and therefore used in your favour. 

Perhaps you haven’t had the property for long enough to actually submit a set of accounts. Again, it is looked at like a self-employed income. As long as you’ve had that property for a year and you have a tax bill off the back of it, we’ve got evidence for the lender of that income, which will increase your affordability. 

Any income, whether it be rental, cash or pension income can all go towards mortgage affordability.

Is it possible to make overpayments or pay off a mortgage earlier as a self-employed individual with one year’s accounts? 

Product features like the overpayment facility are generally consistent for all applicants. If that’s a feature of the product and you can get that mortgage, you can take advantage of it. 

A common overpayment facility is 10% of the balance each year, above and beyond your normal repayments. Let’s say you had a balance of £200,000. You’d pay your normal repayments each month, but on top of that, you’d be able to overpay £20,000 in a year without incurring any further penalties. 

It’s also worth noting that overpayments come directly off your balance. There’s no interest included, so it’s a really good way to pay your mortgage down quickly. If you’ve got the luxury of being able to do that, it’s a really sensible choice.

Can I get a Buy to Let mortgage with one year’s accounts? 

Yes – you can actually get a Buy to Let mortgage without any income at all. Not a large number of lenders out there would do it, but you can. 

It’s another misconception that with Buy to Let mortgages people assume their income wouldn’t suffice. Whether it’s not enough, or because they only have one set of accounts, they think they won’t meet affordability. 

But the affordability for Buy to Let mortgages is driven by the rental income on that property. Your income is not as much of a concern as for a residential property. That said, some lenders will have a minimum income requirement, which is often £25,000. But some lenders have no limits on income requirements. 

So if you’ve got a Buy to Let deposit and you’re holding off because of your income situation, don’t wait. Go and speak to a broker and see what your options are right away.

What steps can I take as a self-employed individual to increase my chances of securing a mortgage with one year of accounts? 

I have a couple of tips for you. If you’re trying to secure a mortgage and you’ve got one set of accounts, be meticulous with your record keeping. One of the biggest problems we come across for people in that situation is producing the correct and accurate income evidence at the application stage. 

Make sure you’ve got a good accountant, that your bookkeeping is in order, and you’re declaring your income correctly. If you under-declare your income, potentially to reduce your tax bill, it will hurt you from an affordability perspective when it comes to getting a mortgage. 

You can’t really have your cake and eat it on this. 

If you’re planning on going self-employed and you’re likely to need a mortgage, try to start that new journey as close to April as possible. Because the financial year runs from April to April, that gives you a run at the whole year, so you’d earn more profit than if you started in December and only had four or five months that year before you submit accounts. 

We see a lot of people who have one set of accounts, which is fine. But if they started part-way through the year, sometimes the income isn’t enough for them to drive the loan size that they need. They then have to work a full year before they can submit the next set of accounts. 

So having the flexibility to start your business in April could give you the best shot at decent affordability. 

How can a mortgage broker help?

It will help you most to speak to a broker that knows a bit about self-employment. A lot of brokers might be part of an estate agency where they’re mainly working with First Time Buyers and simple, vanilla purchases.

If you come to them as a business owner with a limited company, where you’ve got multiple streams of income, it might not be the right fit. If that is the situation, finding a good broker to help you will be worth their weight in gold.

Please note, your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate most Buy to Let mortgages.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. 

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.