Applying for a self-employed mortgage with just 1 years’ worth of accounts doesn’t need to be a problem if dealing with the right lenders. Whilst high street banks will tend to ask for a longer income history of 2 or 3 years, there are specialist lenders who will offer mortgages to people who can only show 1 years trading accounts. The self-employed lending criteria as rightly strengthened since the “credit crunch” of 2007/8 and it is no longer possible to self-certify your income.
You may have already been declined by your bank on your self-employed mortgage application as lenders have a stringent lending criteria.
Whilst the reality is that you can afford a mortgage, finding a lender prepared to loan to you can be tough without the support of a specialist mortgage adviser.
If you are finding it hard to obtain a mortgage as a self-employed person with just 1 years’ worth of accounts and a proven income, please contact us today.
With the support of one of our advisers, you could get a self-employed mortgage if you fall into one of the following categories:
- Sole traders
- Limited companies
- Contractors or freelancers
- Buy to let
- Help to buy
- Bad credit
This is providing that you have been in business, working, or trading for at least 12 months.
Handy Hint: The information in this guide refers to specialist lenders. As a self-employed mortgage applicant with only 1 year’s accounts, OR a contract worker who has recently changed contracts, it’s very likely you will need to borrow from a specialist mortgage lender rather than a high street lender.
How long after being self-employed can I apply for a mortgage?
Many high street lenders require 3 years’ worth of accounts from self-employed applicants before they will approve a mortgage loan.
Whilst this is the norm, there are a select handful of lenders who will offer terms if you have less than 2 year’s income.
Our advisers also have access to some lenders who offer mortgages for the self-employed with 1 year’s accounts.
I’ve not reached 12 month’s trading so can I still apply for a mortgage?
Yes, you can.
Whilst you can’t actually contractually sign on a mortgage deal, you can get approved in principle.
What do we mean by this?
A mortgage lender will not approve a loan for an applicant who doesn’t have at least 1 years’ worth of accounts. They require this for proof of your income, and that can only come after 12 months of trading, filed accounts, and tax returns.
However, there is something called a mortgage approved in principle.
Mortgages for self-employed with less than 1 year’s accounts
This is how our advisers often work on mortgages for self-employed with less than 1 year’s accounts.
Our advisers will typically start helping applicants who are at the 10-month trading point. We say 10 months, because at that time you can place a mortgage application, and it can be approved in principle.
The application they help you put together will be based on an estimate of what your earnings will after 1 year of trading. For example, if you believe you are going to earn £30,000 after 1 year’s accounts, then your mortgage decision will be based on that figure.
The mortgage company will offer you terms based on you being able to prove income at the 12-month point; so, you will need to achieve those projections.
Most mortgage offers tend to stand for 3 – 6 months, meaning you can start house hunting or planning your re-mortgage.
Is it harder to get a mortgage if self-employed for a short time?
It really depends on the type of advice you are given.
Our specialist advisers work with self-employed people around the UK who have only been trading for a year, and in some cases less than 12 months.
Problems can arise in finding a lender who is prepared to offer self-employed mortgages with 1 year’s accounts, plus one that will take your personal circumstances into account.
The traditional lenders will view self-employed people in business for a short-time as higher risk, as there won’t be an established financial record of earnings.
Once you reach the 3-year point of self-employment your options become much wider in terms of the lenders you can borrow from and the rates on offer.
However, that doesn’t mean you can’t get a mortgage with 1 year of accounts.
Our advisers have access to a variety of specialist lenders who will be prepared to look at your application, proof of earnings, and income projections and then offer a mortgage deal.
Can I still self-certify my income when applying for a mortgage?
In a word no.
In the past you could self-certify by telling the bank or building society how much you earned, what your annual income was, and in many cases the amount you wanted to borrow based on those numbers.
However, following the financial crash of 2007/8, the UK finance industry tightened lending criteria in order to reduce risk and bad debt.
Now all UK mortgage lenders will require proof of earnings.
For self-employed traders this has reduced availability along with the number of potential lenders prepared to make a mortgage offer.
Many independent business people and tradesmen with only 1- or 2-years accounts find it much more difficult to get a mortgage than was the case pre-2007.
Can I get a mortgage without 2 years of tax returns?
There’s no doubt that there is a wider mortgage choice for a self-employed person who has been in business for 3 years or more.
At the three-year point, more mortgage lenders will look more favourably on you viewing your employment as being stable with a regular and proven income.
But that needn’t put you off.
If you only have a year’s worth of accounts, there are still options available to you.
In order to get approved for a self-employed mortgage you will need your accounts in order, including tax documentation.
How can I prove my income for a 1-year self-employed mortgage?
Your earnings evidence can be presented in a few different ways.
Lenders who offer mortgages for self-employed people with 1 year’s accounts will typically require accounts prepared by a chartered or certified accountant. The income proof will need to include:
- 1 years’ worth of finalised accounts by a qualified accountant
- If your accountant is not chartered or certified you will need your SA302 self-assessment tax return completed and submitted.
You can download an SA302 form from the HMRC website or ask them to post yours to you.
How is my income calculated?
Most mortgage lenders will assess your affordability based on your net income or if you are a director, they will calculate income based on salary and dividends.
- Sole traders or partnerships: total income received on your SA302 or net profit share.
- Limited company directors: your salary and dividend payments combined.
There are some specialist lenders who may use retained company profits in order to calculate proof of income, but only on rare occasions.
How much of a mortgage can I borrow with 1 year of accounts?
Mortgages for self-employed people with only 1 year’s accounts are treated just the same as full-time employed applicants when it comes to borrowing levels.
Depending on your credit score and history, you can normally borrow up to 5 times your annual income, whether employed or self-employed.
Can I borrow more than typically offered?
Some lenders will occasionally let you borrow more than this, but it’s not common and will only be considered with very high earners who can prove they can afford the loan repayments.
There are also cases where a lender will accept projected income for a second year, where you might not yet have your accounts completed for that year.
As an example, you might have been in business for a year and a half, having 1 year of accounts, with 6 months into your second year.
If the 6 months of the second year are showing improved earnings, then our advisers might be able to help you find a lender who will offer a mortgage based on projections for the year not yet completed.
This isn’t an un-common approach where your existing income is in reality far more than what your accountant helped you file in the previous year.
In terms of a deposit amount, the majority of lenders prepared to offer mortgages to self-employed with 1 year’s accounts applicants will ask for a deposit of at least 10%.
Will the type of business I run affect my chances?
As long as you run a business that is proven to earn regular income, that will be far more important than the actual nature of your business itself.
Our specialist advisers can help anybody with 1-year self-employed mortgages, regardless of their business type. Some of the more typical businesses our advisers have helped with in the past include:
- Taxi drivers including UBER, Private Hire, Black Cab.
- IT workers
- Online business owners
- Painters and decorators
- And many more…
A mortgage lender will not prejudice their lending decision based on the type of business a self-employed applicant runs unless there is a specific reason for doing so.
Can you get a self-employed mortgage with 1 year’s accounts and bad credit history?
Getting a self-employed mortgage with 1 year’s accounts and bad credit can still be possible. There will be some limitations on the range of lenders you can borrow from.
You will also find that these lenders may charge a higher rate of interest and/or fees than those available with high street lenders as the risk will be perceived as being greater.
Our advisers have access to specialist lenders who will offer a mortgage providing you have no serious debt filed on your credit history in the previous 12 months prior to applying. This will include items such as:
- County Court Judgements (CCJs)
- Existing mortgage arrears or defaulting on repayments
If you have missed payments on credit cards, store cards, mobile phone bills and similar in the last year, then lenders might still consider your application.
For those with historical bad credit, the lender might also ask for an increase in the minimum deposit amount up to 15% – and similar figures with equity placed down on remortgaging applications.
Despite their being restrictions in the number of lenders you can choose from, our advisers are confident in finding you a deal.
Having an experienced and specialist mortgage adviser who understands bad credit and self-employed mortgage applications with just a year’s accounts will be vital.
Once you have a mortgage, you will be able to repair your bad credit history over time. In the future you may be able to remortgage onto a better deal with lower rates, and that’s something our advisers can help you with too.
Can self-employed people with 1 year of accounts use the Help to Buy mortgage scheme?
Another route to home ownership our advisers could support you with would be a Help to Buy mortgage.
This is a scheme which helps people with lower than average deposit amounts of 5% buy a new-build property. The shortfall in deposit is made up through a government loan of up to 20% of the property cost.
If you only have a year’s worth of accounts then you can still qualify for the Help to Buy scheme, and just like a standard mortgage will still need to pass credit checks and the usual income proof criteria.
With the support of one of our specialist advisers it could be possible to find the lender with the most attractive rate to suit your employment circumstances.
Can I remortgage with just 1 years’ worth of accounts?
Just like a purchase mortgage application, remortgaging will be based on the same criteria of affordability and risk, regardless of you being self-employed or not.
You will need:
- Proof of income
- 1 years’ worth of signed off accounts
- Or a self-assessment SA302 form
In addition to equity, the lender will also want to see that you have generally made existing mortgage repayments on time with no defaults.
Which mortgage lender is best for self-employed people with 1 year’s accounts?
The most suitable lender will depend entirely on your personal situation, as every lender will have different lending criteria upon which to base an approval.
There is a wide range of lenders in the market who specialise in mortgages for the self-employed with 1 year’s accounts – and using a specialist adviser will help you find the right one for your circumstances. A specialist adviser will search the UK mortgage market and recommend the right one.
By using a mortgage broker who understands the complexity of self-employed mortgages and how best to present those applications into the right lender, you can stand a better chance of success.
Are specialist mortgage lenders safe to use?
All mortgage lenders recommended by our advisers, be they big, small, well known, or specialist are fully registered and regulated by the Financial Conduct Authority (FCA).
Due to your circumstances, you may need to use a specialist lender offering self-employed mortgages on 1 years of accounts.
Can we answer any more questions you might have?
Should you wish to find out more about how our advisers can help, or you have some questions not answered in this guide, then please do get in touch.
You can phone or email us, and one of our specialists will be more than happy to help you out.