Self-Employed Mortgage with One Year’s Accounts
Being your own boss brings lots of advantages, But sometimes Self-Employment can create a few hurdles, and getting a mortgage is one of them. Fortunately, some lenders actively welcome Self-Employed borrowers – even if you haven’t been in business for long.
Can you get a mortgage if you have been Self-Employed for one year?
When a lender considers you for a mortgage, they’re looking for assurance that you can afford the monthly repayments.
The challenge for most Self-Employed people is that your income can vary from month to month or season to season. This makes it more difficult for a mortgage lender to assess whether you will repay them on time.
As a result, many lenders will request a minimum of two years’ worth of accounts, sometimes three. They will average out your annual figures to get an idea of how much your company is making.
Having said that, some mortgage companies will approve you with just one years’ accounts. Some specialist lenders will even consider you if you only have 9-10 months Self-Employment experience. You will need to demonstrate good business performance in this case and provide management accounts and projections, usually from your accountant.
How do I prove my income with only one years’ accounts?
Usually lenders will want to see a set of accounts as part of your mortgage application. The report will need to be certified by a qualified accountant. Accounts normally include full financial details for the latest year including profit/loss, salary and dividends.
Lenders might also request your self assessment tax return (SA302). As with any financial product, they will also check your credit score. An adverse credit record will make it more difficult to access competitive mortgage rates.
How does it work for the Self-Employed, Sole Traders and partnerships?
There are some differences for sole traders, limited companies and partnerships.
With sole traders and partnerships, lenders will either want to see the net profit from your accounts, or the ‘total income received’ stated on your tax return. If you’re in a partnership, you will be assessed on your share of the profit.
If you’re the director of a limited company, the mortgage company might look at the directors’ salary and dividend on your finalised accounts. Other lenders will additionally consider your net profit – which will usually mean you can borrow more.
Every lender approaches this differently though, so prepare to be flexible and seek advice from a mortgage expert.
How much can I borrow?
The good news is that you can usually achieve the same level of borrowing as an employed person, four to five times your income. Using a mortgage calculator will give you the monthly repayments to check you can comfortably afford them.
Being Self-Employed, it’s worth thinking about what might happen if you’re unable to work due to illness or injury. There is no sick pay when you work for yourself. You might need a contingency fund, or you could look at income protection products to keep paying the mortgage.
What deposit will I need?
Deposit requirements are the same as for any standard mortgage. The average deposit is around 10% of the property value, but if you can contribute 15% or more you will almost certainly get better rates and a wider choice of lenders.
Can I get Help to Buy if I am Self-Employed with one years’ accounts?
Help to Buy is a government scheme to help First Time Buyers get onto the property ladder. You can only access it if you’re buying a new-build property.
Under the scheme you can buy a home with just a 5% deposit, because the government contributes a further 20% (or 40% in London boroughs) as a loan, which is interest free for 5 years. You can then take out a mortgage for the remaining 75% of the purchase price.
You can access Help to Buy if you are Self-Employed, even if you only have one years’ accounts. The trick is to find suitable lenders, which are rather limited, but a reputable Mortgage Broker can help.
How can a Mortgage Broker help?
As brokers we’re here to provide expert mortgage advice. We know the market well, from the high street lenders to more specialist brands, and have helped many Self-Employed people find a mortgage to suit their unique financial situation.
Purely Financial is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority. Take the stress out of finding and applying for a mortgage, so contact us today.