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Mortgages for Self-Employed With 1 Year’s Accounts

Wondering if self-employed first time buyers can secure a mortgage with just one year's accounts? Read on and learn the tips and tricks to navigate the lending process effectively.
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In the present scenario, traditional employment norms continue to evolve every single day.

As such, securing a mortgage while being self-employed with just one year of accounts might seem challenging.

But fret not because we have curated this informative article that unveils the complexities of obtaining mortgages for self-employed with 1 year’s accounts

By delving into real-world experiences and expert opinions, we shed light on the strategies that empower individuals in this category to turn homeownership dreams into reality.

From understanding lender expectations to optimising financial documentation, we aim to equip readers with actionable tips. 

So, whether you’re a freelancer, entrepreneur, or small business owner, keep reading to simplify the lending process and make wise mortgage decisions for self-employed individuals.

Is Mortgages for Self-Employed With 1 Year’s Accounts Possible?

Obtaining a mortgage is more challenging for a self-employed individual with a year’s accounts than those with a longer accounting history. 

Mortgages for Self-Employed With 1 Year's Accounts

Many lenders state 2-3 years of self-employment requirement before accepting mortgage applications.

Consequently, the pool of mortgage providers considering such applications is narrower, although they exist.

The said challenge arises due to the perceived uncertainty of future earnings, which lenders view as a risk. This ambiguity makes it harder for them to gauge your mortgage affordability accurately. 

However, it’s worth noting that the following options are feasible with just one year of accounts:

How Much Can You Borrow?

If a lender entertains mortgage applications from self-employed individuals with one year’s accounts, you could potentially secure a loan of around 4-4.5 times your earnings.

Mortgage Affordability Chart

However, the affordability calculations will differ based on the lender and the applicant’s circumstances.

The criterion for calculating your earnings hinges on your share of the net profit on your self-assessment tax return if you are a sole trader or a partnership.

When you hold the position of a limited company director, your earnings are determined by the combination of your directorial salary and received dividends (some lenders may consider the business’s net profit).

In a few instances, if you anticipate a substantial increase in your income in the following year, a lender could be open to assessing your application based on a projection. This projection, however, must be validated by a certified accountant to be considered.

How Can Self-Employed Individuals Get A Mortgage With 1 Year’s Accounts?

If your accounts span only a single year, you might require a specialised lender. Given your recent transition to self-employment, this is due to being perceived as a higher-risk candidate.

Conventional lenders are constrained and tend to reject applications with less than three years of financial records.

Here’s how you can boost your chances of getting a mortgage:

  • Maintaining a favourable credit score
  • Presenting evidence of a healthy business and personal bank account in a well conducted manner
  • Minimising outstanding debts
  • Accumulating a deposit exceeding 10%

Moreover, the nature of your business should not influence your mortgage eligibility to a great extent. Lenders primarily evaluate income from your business to gauge mortgage affordability. 

As their assessment focuses on “risk,” they rarely prefer one business type over another.

However, in very few rare instances, this may play a factor; for example, the occupation sector was more heavily underwritten during the COVID pandemic. 

What Proof Of Income Will Lenders Require?

Lenders will ask for your SA302 records, which can be accessed through your HMRC portal or by mail.

Additionally, some lenders might seek additional income verification, like your completed LTD company accounts or a reference from your accountant.

SA302 records will be accompanied by a Tax year overview (TYO) to outline whether the tax due has been paid or not. 

What To Do If Your Mortgage Request Is Declined?

High street lenders may frequently reject applications from self-employed individuals with just one year’s accounts.

Before the credit crunch, self-employed borrowers could “self-certify” mortgages intended for specific situations but became greatly overused.

These self-certified mortgages were among the major factors contributing to the 2007 crash. Presently, lenders exercise great caution when evaluating mortgages for self-employed individuals.

Moreover, most lenders demand a minimum of three years of accounts from self-employed borrowers.

This extended time frame grants lenders deeper insight into your business and the stability of your income for mortgage payments.

Notably, applicants with three years of accounts often access the same mortgage offerings as employed individuals.

Fewer lenders consider mortgages for the self-employed with two years’ accounts; however, it is quite widely accepted. Clearly, a longer financial history yields better results.

Hence, securing a mortgage for self-employed with one year’s accounts will likely necessitate a specialist lender or potentially a more unique and smaller building society.

Furthermore, consulting a professional financial advisor is best for identifying a suitable lender, as it’s undeniably a challenging endeavour.

Lenders That Consider Mortgage Applications From Self-Employed Individuals With 1 Year’s Accounts

As of May 2023, the following lenders may potentially grant you a mortgage with only one year’s accounts, but note that these options could change:

1. Scottish Building Society

The oldest remaining building society in the World, they consider mortgages with 80% or less loan-to-value ratio, necessitating one year of financial history. However, an accountant’s projection is obligatory. 

Plus, business type and shareholder count can impact the final decision.

2. Norton Home Loans

They require you to pass an Equifax credit search and submit a 1-month bank statement and a 12-month proof of self-employed earnings. 

3. Vida Homeloans

They ask for a year of income evidence for newly established businesses. On top of that, a certified accountant’s projection or recent 3-month business bank statements are essential.

Disclaimer: These are just some examples and are not financial promotions that you should approach any specific lender. 

Can You Get A Mortgage With Less Than One Year Of Trading Accounts?

If your trading period spans less than 12 months, finding a lender willing to review your application becomes even more difficult.

After all, lenders must act responsibly, which requires substantial proof of your mortgage’s affordability.

Yet, as your first year of trading nears its end, you could approach a mortgage broker who might attain you a decision in principle (DIP) based on projected income. If approved, this DIP usually lasts around three months.

A mortgage broker will not be able to submit a full mortgage application for your first year’s income being finalised by way of SA302/TYO or LTD company accounts.

Furthermore, self-employed individuals without any accounts may apply for a mortgage. These are context-dependent and are usually only applicable where the lender classes the applicant as a contractor.

For instance, new business owners and contractors with past records in similar domains might qualify for these mortgages if a lender can get a copy of a contract. 

FAQs

1. Are specialist lenders safe?

It’s important to note that specialist lenders are intended for particularly challenging situations and are arguably just as reputable as any other available lenders.

They are regulated by financial authorities, such as the Financial Conduct Authority (FCA) in the UK, unless the business they are completing classes is unregulated, which ensures that they adhere to strict standards and guidelines to protect consumers.

However, like with any financial transaction, it is imperative to read the terms and conditions carefully and seek advice from qualified professionals before making any decision.

2. Can I get a mortgage with one year’s accounts and bad credit?

While each scenario is unique, obtaining a mortgage with one year of accounts and bad credit is possible. But needless to say, your options will be further limited.

Note that a deposit of around 15% is likely required for minor credit setbacks, potentially more for serious issues.

Securing a mortgage in such a situation will likely entail a higher interest rate. Specialist lenders might also levy higher fees to mitigate risk.

However, much to the relief of such individuals, approval offers them a chance to mend their credit score over time, enabling future lower rate rates when they come to remortgage. 

Given individual variations, consulting an experienced advisor in credit matters is important. This aids in evaluating your case and providing an honest assessment of your mortgage approval prospects.

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

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.

Our goal is simple - to provide most up-to-date and accurate mortgage information to make your mortgage journey as stress-free as possible. Have a question? Fill up the quick form and one of our mortgage advisor will connect with you.

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