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Self-Employed Mortgages Using Last Year’s Accounts

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Author: Carl Shave-Director
Updated on June 14th, 2022



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Mortgages Using Last Year’s Accounts

After the financial crisis and ensuing credit crunch during 2008–9, it became a little more challenging to obtain a mortgage when you were self-employed. Lenders became a lot more risk-averse, and their criteria for granting mortgages became far more stringent in order for them to minimise their exposure to losses in the case of a default. Someone whose income might not be as regular as a person in conventional employment was perceived as being a high lending risk.

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We’re glad to say that in recent years, the market has recovered, evolved and grown with the changing nature of employment. More people than ever before are starting businesses for themselves or working as freelancers or contractors. A number of specialist mortgage lenders have sprung up to meet their needs, and even a few mainstream lenders have become more flexible in their approach to lending to the self-employed so as not to miss out on a significant portion of the market. Where once you might have always been expected to provide at least three years’ worth of accounts, it is now possible to get a mortgage based only on your last year’s accounts.

Getting A Mortgage Using Last Year’s Accounts

When looking to secure a mortgage deal and prove your income, lenders would traditionally ask any self-employed applicant to provide at least two or three years’ worth of business accounts–

this was to make sure that your income was sustainable and therefore that you would not be likely to default on the mortgage agreement. The lender would usually take an average across those two or three years to produce a figure that they would use for your income in an affordability assessment.

However, this method of calculating your average annual income could count against you if you had just had a very good year, where your business was generating better profits than in the preceding one or two years. This might happen if you were a recent start-up, or had expanded your services, or simply met an increased demand.

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It is now possible in many cases for a mortgage lender to consider just your latest year’s accounts, if you can show that this higher level of income will be long-term and not just a one-off occurrence.

When applying for a mortgage using your last year’s accounts, it will also help your case if you have a larger than average deposit to put down, or already have a lot of equity in a current property. Lenders will give consideration to a lower loan-to-value (LTV) ratio, and will feel more confident about their perceived level of lending risk.

Mortgages with Last Year's Accounts Information

Proving my Income with Last Year's Accounts

To ascertain proof of income, mortgage lenders will usually ask for your business accounts (to be prepared by a certified or chartered accountant) and/or may also use your SA302 year-end Tax Calculation form and the accompanying breakdown from HM Revenue & Customs. If you are self-employed the lenders will gauge your total net profit; if you are in a partnership they will need to see your share of the business’s net profit, and if you are a limited company director, you will have to show your salary plus dividends (if the lender’s policies allow dividends to be taken into account).

For cases where you are trying to establish a higher income using your latest year’s accounts, they are likely to also need a realistic projection of future income based on your recent year’s performance, also prepared by your accountant, and may ask further questions.

How much can I borrow using only last year’s accounts?

The duration of your accounts period will not dictate your available level of borrowing as a self-employed person–the figure that a lender calculates from your accounts for your annual income that makes all the difference. If the mortgage lender feels confident that your last year’s accounts give an accurate and realistic interpretation of your income going forward, and are willing to lend on that basis, then they will typically lend between 3.5 to 5 times your annual income. Your case could be further aided by providing a deposit of at least 10% of the property value, and having a clean credit history over the last six years.

Can I get a mortgage using last year’s accounts if I have bad credit?

A lot depends on what caused the bad credit, what type of credit problem you had, and how long ago it occurred. Any evidence of mortgage arrears, defaults or county court judgements (CCJs) against your name within the last two years might put a lender off offering you a mortgage. However, a few late payments on credit cards or store cards, even in the last year, might not prejudice the lender against your application, especially if your current financial situation is steady.

Will using Last Year's Accounts make a difference to my Mortgage?

The difference between using an average of your last three years’ accounts and using only your last year’s accounts can be significant if you have seen a marked recent upturn in your business profits. With lenders offering between 3.5 to 5 times your annual income for a mortgage, it’s all important for your income figure to reflect your current circumstances as accurately as possible.

For example, if your income figures for the previous two years before last were £40,000 and £45,000, but last year’s was £80,000, then your potentially strong income figure could be seriously affected by the weaker earlier numbers.

If a mortgage lender bases their lending limit on 5x the average of your annual income over the last three years (£55,000), then, using the numbers above, you would be able to borrow £275,000.

If the lender was using an average from the last two years’ accounts (£62,500), then your limit, based on 5x your average annual income would be £312,500.

But if they are willing to go by your last year’s accounts only (with an income of £80,000), then you could be looking at a significantly larger mortgage of £400,000–this could make the difference between just another decent house and the home you’ve really had your eye on.

The important thing to remember is that all figures for your projected income must be as accurate as possible, in order to show that the mortgage is affordable and ensure that you will be able to keep up payments. It’s likely that lenders will insist on them being prepared by a chartered or certified accountant. Also bear in mind that much will depend on an individual lender’s underwriting policies, and not all will accept your last year’s accounts only. As specialists in this field, we will be able to help you find the lenders who will be able to meet your needs.

Can I Remortgage using Last Year's Accounts?

As with a normal mortgage, a self-employed person should be able to remortgage using only last year’s accounts–and it could be possible for you to increase your borrowing if you need to borrow more than your previous accounting would have allowed. If your last year saw a significant increase in your income, and it is projected to remain at that level ongoing, then you should be able to remortgage at a higher level, provided all your figures have been prepared by a chartered or certified accountant.

A number of lenders have become more flexible in their approach and moved away from the traditional view that self-employed borrowers need to show at least two or three years’ worth of accounts. Many specialist lenders are willing to look at a borrower’s individual circumstances when it comes to deciding on the figures.

Can I get a Help to Buy Mortgage Using Last Year's Accounts?

It is indeed possible for a self-employed person to obtain a mortgage under the government’s Help to Buy scheme using their latest year’s accounts. Help to Buy helps people to enter the housing market by offering a loan to cover part (perhaps 20–45%) of the mortgage on a new-build home. This is interest-free for the first 5 years.

Many lenders are far more flexible than they once were when it comes to looking at your business accounts and projected income, and will often take all your circumstances into account when considering how much they are prepared to lend to you. While still regulated to ensure responsible lending, the mortgage market has evolved to meet changing market demands in recent years, and will accept using your last year’s accounts if the income level shown can be proven to be sustainable and realistic ongoing.

Our expert team at The Mortgage Centres has an in-depth knowledge of the market and access to specialist lenders who are willing to lend to self-employed people of all types who are looking for a mortgage in conjunction with the Help to Buy scheme.

Mortgage using Last Year's Accounts if I have just switched to a Limited Company?

If you have recently switched your business status from a sole trader or partnership to a director of a limited company, then it can still be possible to secure a mortgage. You might just need to jump through a few more hoops than usual.

Lenders base all their decisions on whether to lend and how much they are willing to offer on an assessment of an applicant’s income. If you can show that your income up until switching to limited status was consistent, and at an appropriate level for the mortgage you need, and that this will continue through the salary you draw from the business, plus dividends (and perhaps profits retained in the business, if the lender will accept that), then there are a number of lenders who will be willing to offer you a mortgage on that basis. Just remember that they will expect all figures–previous, current and projected–to be prepared by a certified or chartered accountant.

Much will depend on the individual lender’s qualifying criteria and lending policies–some may be willing to look at the details behind your business structure and supporting information, while others may be more strict about what they consider a reliable measure of income. With so many lenders on the market, it is always best to check with a specialist mortgage broker who knows how each lender operates, and what approaches they take to your income.

Who are the best Lenders when using Last Year's Accounts (Specialist)?

You will be interested to learn that a few high street lenders are now willing to offer mortgages to self-employed people using just last year’s accounts. However, if you do not meet their criteria for whatever reason, there are also many specialist mortgage lenders that are likely to help you.

A few names to consider are Aldermore, Bluestone, Precise Mortgages, Pepper Money and Kensington–these companies have been operating in the specialist mortgage market for a number of years, and they are all willing to consider applications for mortgages based on your last year’s accounts.

Not all mortgage brokers will have access to these specialist lenders. At The Mortgage Centres we work with all the above and other lenders in our mission to find mortgages for people in niche circumstances who may have been declined by conventional services. Due to our expertise and relationships in the industry, we also have access to exclusive products only available through specialist lenders, as well as trusted access to any new players entering the market.

Specialist Self-Employed Mortgage Advice

At The Mortgage Centres, we know that the blanket approach to mortgage suitability taken by most mainstream lenders does not usually take into account the often complex differences between different types of self-employed people. Freelancers, contractors, partners and company directors often do not all fit under the same umbrella. We have specific experience of dealing with mortgages for self-employed people–understanding how our clients’ circumstances are structured as well as how a lender’s approach is structured, so we can marry the two together to get you the mortgage you need.

To find out what options you might have for a mortgage and arrange a free consultation to go over all your circumstances, please call our team on 0330 094 5876, or drop us a line via our Contact form.

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