Being self-employed and deciding to take on a mortgage is a milestone. However, unlike an employed person getting a mortgage, being self-employed and applying for a mortgage comes with its challenges.
As a self-employed individual, you are responsible for your own earnings and tax, a key component for lenders to assess your application, you will need to provide official financial records to show this.
A frequently asked question amongst self-employed business owners is whether they can get a mortgage with one year’s accounts.
The simple answer is yes, it is possible. However, we’ll detail in this article they key considerations you need to bear in mind when you’re thinking about applying for a mortgage.
What are the minimum accounts required?
How long I need to be self-employed for to get a mortgage is a common question to ask when you’re looking at getting a mortgage.
The standard many lenders ask for is three years of official accounts to prove your income.
As we’ve said, lenders need to establish how much you earn and this can be harder to establish from a self-employed applicant. They want to know the level of risk involved if they lend to you. They need to establish how stable your income is and what the level of risk is of you not being able to repay a mortgage loan.
A potential lender will generally view a self-employed application with three or more years accounts the same as an employed person which opens up the pool of lenders. If you’ve only been trading for 1 or 2 years you become more of a risk.
Who can get a mortgage based on one year’s accounts?
It is still possible to get a self-employed mortgage with one year’s accounts, if for example:
- Your company has been trading for 1 year
- You’re a sole trader who has been trading for 1 year
- You’re self-employed looking for buy to let mortgages
- Your business is established but has had recent structure changes or recently became limited
- You’re a contractor
- You have been self-employed for 1 year with but have bad credit
- You’re looking at remortgages for business investment
- You’re the director of a limited company who has been trading for 1 year
These are just a few examples of common circumstances (that are subject to status), we at the Online Mortgage Guru know everyone’s situation is unique to them.
With regards to the nature of your business, it shouldn’t affect your mortgage. Lenders are pretty flexible when it comes to the sector in which you work, your business just has to be viable i.e. builders, plumbers, electricians, tradesmen in general, musicians, retailers, online businesses, professionals etc. Any potential lender should look at your business accounts to determine your affordability only.
Who lends to individuals with one year’s accounts?
It’s common to see high street banks decline a mortgage loan for an applicant who is self-employed with only one year’s accounts.
Prior to the banking crisis, a self-employed applicant could ‘self certify’ their mortgage. Banks now have to take a much more cautious approach with stringent criteria.
In the eyes of a lender, it is more difficult to establish your earnings with one year’s accounts, which makes you a high risk.
However, there are specialist lenders within the wider market who take a more flexible approach to different circumstances. These lenders will all have their own set of criteria but are more likely to lend to you with one year’s accounts because they will consider current and filed accounts, and projections of future business income from an accountant. You may even find that they will consider the value of your net income, retained company profits, and for directors, their salaries and dividends.
The mortgage advisors we work with are whole of market brokers, who have access to these lenders and know their criteria so can place you to ones best suited based on your circumstances.
How do I get a mortgage with one year’s accounts?
No matter the lender the main things they will assess your application on are:
- Credit rating
They will also take into account:
- Loan to Value
- How much you want to borrow
- Property type
As you are applying for a mortgage with one-year accounts you will need to provide proof via your SA302 forms (self-assessment tax forms). Some lenders may also request that you provide an accountants reference or your finalised accounts.
How much can I borrow?
Providing you meet their criteria and have proof of income you may be able to borrow up to 5x your income (the same as an employed applicant).
However, if you have one year’s accounts and bad credit whilst it is possible to be approved the pool of lenders will be limited and you may be subject to some restrictions. You will likely need a minimum of 15% deposit, rates and fees will be higher and it will depend on the severity of your adversities. In this situation, by talking to an expert advisor they can assess your situation and let you know the honest likelihood of being approved for a mortgage.
If you’re a first-time buyer it’s also worth noting that you may be able to access Help to Buy mortgages.
Speak to an expert advisor
It can be beneficial in these circumstances to seek advice from a specialist mortgage advisor who can talk you through your options and use the whole of the market to match you to a lender based on your needs.
If you’re having difficulty finding a mortgage lender, are unsure whether you will qualify or have previously had your application declined get in touch and we’ll put you in contact with an advisor who specialises in mortgages for self-employed individuals with one year’s accounts.
Contact us at the Online Mortgage Guru on 0345 3669799 or email us via firstname.lastname@example.org.
You could also start by seeing how much you could borrow with our free mortgage calculator.