How to get a Mortgage when Self-Employed

When you’re self-employed, proving your income can be more complicated than it is for someone who is employed full-time by a company.

Lenders typically assess the risk of lending by examining a borrower’s financial history.

For employed individuals, this usually involves reviewing pay slips, bank statements, and P60’s.

However, for self-employed individuals, lenders often rely heavily on submitted accounts, typically over two to three years, to establish a reliable income pattern.

Reason why it can be more difficult:

1. Income Stability

Self-employed income can fluctuate, and without a long history, lenders may be concerned about its stability and future growth potential.

A single year of accounts doesn’t provide a full picture of your Businesses performance, leading to uncertainty about future earnings.

2. Higher risk due to lack of track record

Lenders perceive recently self-employed individuals as higher-risk borrowers due to the potential for new businesses to fail in the early stages.

A longer track record provides more certainty, allowing lenders to assess how well your business is performing over time. Without this, they may worry about your ability to sustain your income.

3. Stringent Criteria 

Many traditional lenders have strict criteria for self-employed borrowers anyway, often requiring two or three years of accounts, as a minimum.

With only one year’s accounts, most high street Mortgage Lenders find this too risky.

Yes, it is possible to get a mortgage with only one year’s accounts, but it’s more challenging.

The key is to find a Mortgage Advisor who knows the Lender willing to consider your application based on limited financial history.

And this is where a Specialist Mortgage Advisor, such as ourselves, can really add value.

There are often specialist lenders who understand the nuances of self-employed income and are more flexible with their criteria. But there are also some High Street Mortgage Lenders which can help.

Things to consider:

1. Specialist Lenders

While most high-street lenders might be hesitant, several specialist mortgage lenders are willing to work with self-employed individuals who have only one year of accounts.

These lenders are typically more understanding of the challenges faced by newly self-employed individuals and are open to considering your application if other aspects of your financial profile are strong.

2. Affordability Assessment

Lenders will look at your overall affordability, not just your income. This means they’ll consider your deposit size, credit history, and overall financial health. If you have a larger deposit or an excellent credit score, it may help offset the risk of only having one year’s accounts.

3. Potentially Higher Interest Rates

As fewer Mortgage Lenders accept applicant who are recently Self Employed, this may mean the Mortgage products available to you are more expensive.

This won’t always be the case though, as some High Street Lenders will consider you.

1. Work with a Specialist Mortgage Advisor, such as ourselves

A mortgage broker who specializes in self-employed clients can be invaluable. They have access to a wider range of products, including those from specialist lenders who are more willing to consider applicants with limited accounts.

Brokers understand the market and know which lenders are likely to be more flexible with their criteria. They can also help present your case more effectively, highlighting the strengths of your financial situation.

2. Save as much as you can

Having a larger deposit reduces the lender’s risk, making them more likely to approve your mortgage.

If you can save for a 15-25% deposit, it could significantly improve your chances of securing a mortgage.

Although with a good clean credit history, 5-10% should be sufficient.

3. Credit history admin

Lenders will scrutinize your credit history, make sure your credit report is in good shape by paying off any outstanding debts that you can (speak to a Mortgage Advisor before doing this), correcting any errors, ensuring you are on the electoral roll and avoiding new credit applications before you apply for a mortgage.

4. Ensure your Bank Statements are in order

Try to avoid dipping into your overdraft, and never go over your overdraft.

Gambling transactions once a week are unlikely to be an issue, but several times a week may cause some Lenders concern.

Try to avoid references on transactions to friends and family members which joke about criminality. Some Lenders can be funny about this.

5. Ensure your Business Statements are healthy

The key thing Lenders will be looking at is your Businesses net profit, compared to the receipts on your Business Bank Statements.

Typically Lenders will check the most recent 3 months and they’ll want to see that your current income is supporting the income declared in your accounts.

1. Ltd Company Accounts or Tax Calculations/SA302’s for the year 

You’ll need to provide one year of certified accounts prepared by a qualified accountant or a latest SA302/Tax Calculation if not a Limited Company.

You will be obtain these documents from your Accountant or the Self Assessment Gov portal.

2. Tax Year Overview

In combination with one of the above, you’ll also need to provide an Tax Year Overview, to evidence the tax you have paid over the latest year.

You can obtain this from your Accountant or on the Self Assessment Gov portal.

3. Bank Statements

Mortgage Lenders will typically require latest 3 months Business and Personal Bank Statements.

This helps them see your cash flow and how you manage your finances.

Crucially, they will check your Bank Statements to ensure your current income receipts support the net profit displayed on your Tax Returns.

4. Proof of Deposit

You’ll need to provide evidence of your deposit, whether it’s from savings, a gift from family, or other sources. 

5. ID and Proof of Address

As with any mortgage application, you’ll need to provide identification (such as a passport or driver’s license) and proof of address (such as utility bills or a council tax bill).

In addition to a handful of High street Mortgage Lenders, the following Specialist Mortgage Lenders will also consider Self Employed applicants with one years accounts:

1. Generation Home

An AI Lender who has come to market with a range of First Time Buyer products and criteria.

They pride themselves in their quick processing times.

2. Kensington

Known for their flexibility with self-employed borrowers, Kensington Mortgages often consider applicants with only one year’s accounts, particularly if other aspects of your financial profile are strong.

3. Aldermore

Aldermore is a specialist lender that frequently works with self-employed individuals, offering products that require only one year of accounts, especially if you have a good credit history and a solid deposit.

4. Precise

Precise Mortgages is another lender that understands the challenges of self-employment and may be willing to consider applications from those with limited accounts, particularly if you can demonstrate consistent income.

5. Foundation Home Loans

Foundation Home Loans is a specialist lender that offers flexible criteria for self-employed applicants, including those with only one year of accounts. They are particularly popular with those who have a complex income structure.

The amount you will be able to borrow depends on several factors, including your income, deposit size, credit history, and the lender’s criteria.

Generally, lenders calculate how much you can borrow using a multiple of your annual income, typically ranging from 4 to 5 times your income.

For example:

If your net profit for the year is £50,000, and a lender uses an income multiple of 4.5, you could potentially borrow up to £225,000. However, the actual amount might vary depending on the lender’s specific criteria and your overall financial profile.

1. Consider appointing an Accountant

Begin preparing your finances well before you apply for a mortgage. Ensure your accounts are up to date, and consider working with a qualified accountant who can help present your finances in the best possible light. Some Specialist Lender will prefer an Accountants Certificate, so having an Accountant in place could help.

2. Work with a Specialist Mortgage Advisor

A Mortgage Advisor who specialises in self-employed clients can guide you through the process and match you with lenders who are more likely to approve your application.

3. Save what you can

The more you save for a deposit, the better your chances of securing a mortgage. A larger deposit reduces the lender’s risk and can lead to more favourable rates.

4. Keep your Credit Report clean

Pay all bills on time, reduce your debt, and avoid taking on new credit before applying for a mortgage. A strong credit history will help offset the perceived risk of having only one year of accounts.

5. Stay calm

The process may take longer when you’re self-employed, so don’t panic. Working with a broker and being prepared can help smooth the process.

If you feel you now need more tailored advice, please feel free to get in touch.

We can put you in touch with one of our Specialist Mortgage Advisors, who can tell you how much you can borrow and look to obtain you a Mortgage in Principle Certificate so you can view and Offer on a property.