Self-employed individuals with just one year of accounts can obtain a mortgage, and in some cases without paying a higher interest rate, according to mortgage experts. The common assumption that two or three years of trading history is required may be outdated.
One Year's Accounts: What Lenders Really Require
Toby Quanstrom, director of Eastbourne-based Quanstrom Financial, told Newspage: "The common belief is that two or three years of self-employed history is needed. The reality is only one year is required, or even less for some contractors."
Quanstrom highlighted a client who set up a limited company a year ago and was offered £272,000 by their own bank based on one year's salary and dividends. After placing the client with a different lender that used salary plus net profit before corporation tax, they borrowed £666,000.
Lenders such as Halifax and HSBC can consider one year's figures without an automatic rate premium or larger deposit, as can specialist lenders like Gen H, Pepper Money, or The Mortgage Lender. Some lenders want to see similar work beforehand, but projections are rarely needed. Contractors may have even more flexibility, with lenders potentially using the day rate, contract value, or monthly payslips or invoices.
Dispelling the Two-to-Three-Year Myth
Nouran Moustafa, practice principal and Independent Financial Adviser at Roxton Wealth, said: "One of the biggest misconceptions in the mortgage market is that self-employed people need two or three years of accounts before they can buy a home. That's simply not true. Some lenders accept one year's accounts, but the strength and sustainability of income matter enormously."
For sole traders, lenders typically assess net profits. For company directors, salary and dividends are common, although some consider retained profits. Contractors may be assessed using their day rate and contract history. Previous industry experience, an accountant's reference, and up-to-date trading figures can strengthen an application.
Moustafa added: "One year's accounts doesn't automatically mean paying a higher interest rate or borrowing less. My biggest frustration is seeing capable business owners assume they're ineligible because someone told them to come back in two years."
Lender Choice and Income Assessment
Manooch Suree, director at Uxbridge-based Zinga Financial Services, said: "There's a widespread belief that self-employed borrowers need two or three years of accounts to secure a mortgage. That is outdated. A number of lenders will consider a single year's figures, or base their assessment on the most recent year's income."
What matters is whether the lender is satisfied that the income is sustainable rather than a one-off. Every lender calculates income differently, and the same applicant can be accepted by one lender and declined by another, which is why specialist advice is essential. Suree noted that they recently helped clients with just one year's accounts secure a higher loan amount than their bank offered.
Rohit Kohli, senior mortgage adviser at Romsey-based The Mortgage Stop, said: "It's absolutely possible to get a mortgage with one year's accounts, but you need to be realistic. A few lenders will do it, but they're taking a bigger risk." Borrowers may not be lent as much as with two or three years of accounts, and it could be slightly more expensive. Lenders will look at how the business is trading now, using the last year's figures and the most recent six months to check it is on course.
Stephen Perkins, mortgage broker and managing director of Norwich-based Yellow Brick Mortgages, said: "The idea that every self-employed borrower needs two or three years of accounts is outdated. A number of mainstream lenders will consider someone with just one year's figures, particularly where they previously worked in the same industry and the income looks sustainable."
Improving Your Chances and What Lenders Consider
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth, said: "Being self-employed for only a year doesn't mean your mortgage application has to spend another year sitting in the doldrums. Some lenders will work with one year's figures, especially where there's a strong deposit, good credit profile and a logical progression from employment into the same line of work."
Steven Greenall, mortgage and protection advisor at Dunmow-based Protect & Lend, said: "I've recently advised a young couple who are both self-employed with one year's accounts. Some lenders will also require latest year's projections, but yes there are lenders who will just go off one year."
Malcolm Davidson, director at Hull-based UK Moneyman, said: "While many high street lenders want two years' worth of accounts, there are others who only want one year and, to be fair, borrowers who qualify tend not to be disadvantaged in terms of rates on offer." Lenders tend to look at the current financial position of an employee, but in the rear-view mirror for a business owner. A self-employed customer whose profits are rising won't see the benefit in maximum borrowing until the following year's accounts are submitted.
Richard Davidson, mortgage advisor at onlinemortgageadvisor.co.uk, said: "It's far more doable than most self-employed people are told. The clients I get over the line on one year usually did the same job on a payslip before going it alone, because that track record is what reassures a lender." Done through the right mainstream lender, they often pay the same rate as anyone else, and a strong first year can even mean borrowing more. Some lenders want a bigger deposit, and contractors tend to have it easiest, as many lenders work off their day rate.
