Self-Employed Mortgage with One Year’s Accounts
Being Self-Employed can feel very liberating, especially if you’ve spent your working life being managed by others. There are so many benefits to being your own boss.
One area that can seem a little less free and easy for the Self-Employed Is getting a mortgage. Fortunately, there are many lenders that are supportive of Self-Employed borrowers.
Can you get a mortgage if you have been Self-Employed for one year?
The challenge with mortgages for the Self-Employed is in the affordability assessment. In a nutshell, Self-Employment makes it harder for the mortgage lender to assess whether you can comfortably afford the monthly loan repayments.
It’s enviably easy for employed people to apply for a mortgage. They simply state their salary and supply payslips to prove their income. But if you’re operating as a sole trader or limited company, your income can vary a lot from month to month.
Because of that, most lenders will want to see at least two years’ worth of accounts, and often three. The purpose is to give them a sense of how much your company is making.
Lenders usually require a minimum of two years of accounts for Self-Employed individuals. However, some non-high street lenders will agree to a mortgage with just a single year’s accounts. A few specialist lenders will even consider those with around 9-10 months’ Self-Employment history, as long as the net profit looks healthy.
How do I prove my income with only one year’s accounts?
The standard proof required by mortgage lenders is a set of certified accounts, including the latest year. ‘Certified’ means that they have been reviewed by a qualified accountant. Your accounts should include full financial details including profits, losses, salary and dividends.
You may also need to provide your self assessment tax return (SA302). Additionally, as with any mortgage or loan application, the mortgage company will also look at your credit score.
Are there different requirements for the Self-Employed, sole traders and partnerships?
The reason the lender wants to see your records is the same whether you’re a sole trader, limited company or a partnership. What can differ is how the lender assesses your income.
For sole traders and partnerships, lenders will usually calculate your income based on your share of the net profit from your accounts, or the ‘total income received’ stated on your tax return.
If you’re the director of a limited company, the mortgage company will look at the directors’ salary and dividend stated on your finalised accounts.
Every lender is different, however, so there may be other requirements too.
How much can I borrow?
The amount you can borrow is the same as that for an employed person, around four times your income. Some companies may allow you to borrow 4.5 to 5 times your salary, but you should make sure you can afford the monthly repayments comfortably.
This is even more important for the Self-Employed, who often don’t have a guaranteed income. Remember too that sickness and holidays are unpaid for most Self-Employed people, so it can help to have a contingency plan or an income protection policy.
What deposit will I need?
The Self-Employed aren’t expected to contribute any more deposit than an employed person. As with any home purchase, though, the bigger your deposit, the more mortgage deals will be available to you – and at better rates.
Can I get Help to Buy if I am Self-Employed with one year’s accounts?
Help to Buy is the government’s scheme to support first-time buyers and home movers with limited equity. It only applies when buying a new-build property.
First time buyers and home movers that qualify for the scheme can buy a home with just a 5% deposit. The government then boosts this amount with a loan (typically 20%), with a mortgage required for the remaining 75% of the property.
There are individual Help to Buy schemes for England, Scotland, Wales and Northern Ireland. In London the loan is 40% to reflect higher property prices.
Help to Buy is open to Self-Employed people, including those with one year’s accounts. There aren’t many of these lenders to choose from, however, so it’s worth seeking reputable mortgage advice.
How can a Mortgage Broker help?
Seeking the services of a Mortgage Broker will usually help you find a competitive mortgage. Mortgage specialists know the market well and will recommend providers who are likely to accept your specific financial circumstances.
WhatLife is authorised and regulated by the Financial Conduct Authority – and we’re here to find a mortgage to suit you. Contact us today and start your home buying journey.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.