Self-Employed Mortgages With One Year’s Accounts
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Self-Employed Mortgage with One Year’s Accounts
There’s an enduring myth that it’s more difficult for the self-employed to get a mortgage. In fact, most lenders are very welcoming to small business owners and many will approve you with just one year’s worth of accounts.
Can I get a mortgage if I’ve only been self-employed for one year?
The reason why lenders like you to have been in business for a while is to help them get a sense of your income. Lenders have a responsibility to confirm that you can afford to pay back the loan.
Because income is often variable for the self-employed, lenders usually like to see two to three years’ records. That way they can take an average figure for your annual earnings.
Some lenders will accept just one years’ accounts, however, and some will even take 9-10 months’ business records as long as your company is performing well.
How do I prove my income with only one year’s accounts?
To prove your income you need to supply a few documents, which may include certified accounts, tax returns and bank statements.
Lenders will also check your credit score. If you’ve had credit problems in the past six years your choice of lenders could reduce, and you can expect higher mortgage rates.
Is it different for a sole trader, a partner or a limited company?
The proof of income documents you need will often vary depending on how your business is set up.
For sole traders, the lender will see your business profits and your income as the same thing. You will usually need to supply self-assessment records, as these verify your income.
If you’re in a partnership, you will be assessed on your share of the profit rather than the total business income. A broker will help you calculate how much this means you can borrow.
For a limited company, the mortgage lender is likely to look at your accounts, which need to be certified by a qualified accountant. Seek advice if you pay yourself a low base salary to keep your tax down, as some lenders will base your loan on that stated salary and dividends. Specialist lenders will also include the net profit in your business – which usually means you can borrow more.
How much can I borrow with just one year’s accounts?
The amount you can borrow is calculated the same way as for an employed person – it’s around four to five times your annual income. If you are aiming for a higher total loan, you could also look at a joint mortgage. Lenders will base the loan on the two applicants’ combined income.
The most important thing is to make sure that the monthly repayments on your mortgage are comfortably affordable, as your home is at risk if you can’t keep up with the payments.
Self-employed people often choose to safeguard their mortgage with an income protection policy. This pays you a set monthly amount if you can’t work due to illness or injury – there is no sick pay for the self-employed, so this can be a helpful fallback.
What deposit will I need?
The minimum mortgage deposit is 5% of the property value, but if you can put down 15% or more you’ll get better rates and a wider choice of lenders. Some 5% mortgage deals are available, but remember that this will make your monthly payments considerably higher. You will also need a clean credit record for these products.
Can I use the Help to Buy scheme as a self-employed person with one year’s accounts?
The UK government Help to Buy scheme allows you to buy a home with just a 5% deposit, topped up with an interest-free loan from the government to take it up to 25% (45% in London).
Help to Buy is open to the self-employed including people that have only been trading for a year. The challenge will be to find suitable lenders – which is where Mortgage Advice Centre can help you.
How can a Mortgage Broker help?
As professional mortgage brokers we will compare hundreds of mortgage deals on your behalf, across high street lenders and more specialist companies.
Our mortgage advice has helped many self-employed borrowers achieve their property goals, including those with just one year’s accounts. We even take charge of mortgage applications to make the process stress-free for you.
Contact us today and see how we can help you find a good mortgage deal.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.