Can you get a Mortgage if you have been self-employed for one year?
It’s certainly possible to obtain a mortgage as a Self-Employed applicant with only one year’s worth of accounts available, if you find the right Mortgage Lender. Specialist lenders who exclusively help Self-Employed applicants are likely to have more flexibility in this area.
You wouldn’t have access to the same range of mortgage products as other applicants and the interest rates are likely to be higher than they would be if you had a longer accounting history, as they would reflect the increased level of risk a lender is taking by offering a mortgage to a less established business owner.
How do I prove my income with one years accounts?
How you prove your income and the type of documentation required will depend largely on the type of Self-Employed business that you operate. It’s also likely that some lenders will ask for a projection of future earnings, if you currently only have one year’s worth available. Business plans and anything that supports your growth potential may also be helpful.
As a Self-Employed business owner your mortgage will usually be based on your personal income and dividends and will use certified accounts produced by a qualified accountant and your SA302 end of year tax form for the year(s) in question.
As a sole trader, it’s likely that lenders will obtain an average of your total net income over a period of time. This is a bit more difficult with only one year of accounts available, but you will need to provide any accounting history you have, as well as your SA302.
If you are part of a Self-Employed partnership, you will need to own at least 25% share in order to be considered Self-Employed for a mortgage application. Your share of the total net profits will be used to calculate the loan from the SA302 form.
How much can I borrow?
Mortgage lenders generally offer loans based on a multiple of your annual income. This can range between three and six times your earnings, and the exact multiple used will be based on affordability and risk. Being a Self-Employed borrower, in itself, shouldn’t impact how much you can borrow, but there’s a chance that lenders will be more cautious with those who have less accounting history and those employed in certain industries than others.
A poor credit score can also negatively impact how much lenders are willing to lend, so it’s worth making efforts to improve your score, where necessary, before you apply.
What deposit will I need?
There’s no specific deposit amount aimed at Self-employed applicants, regardless of how long your accounting history is. 10-15% is the usual requirement for a Standard Residential mortgage, although it is now possible to find some 5% deposit products.
That being said, as a Self-Employed applicant with one year of accounts, you will be considered a higher risk applicant and therefore the more deposit you can afford to offer, the higher chance you have of securing a mortgage.
Can I get Help to Buy if I’m self-employed with one year’s accounts?
Home ownership schemes are available to Self-Employed, as well as employed applicants. It might be challenging to find high street lenders offering Help to Buy mortgages to applicants with less than three years of accounting history, but specialist Mortgage Brokers may be able to help you find one.
With the Help to Buy scheme you use a government equity loan of up to 20% (40% in London) of your home’s value towards the deposit, meaning you only need to supply 5%. The lower Loan to Value borrowing of 75% in this case will make it easier to secure a mortgage. The repayments on your mortgage will also be lower on a 75% Loan to Value mortgage, due to the lower loan amount and interest rate.
How can a Mortgage Broker help me?
Mortgage Brokers who specialise in providing mortgage advice to Self-Employed applicants have the best chance of being able to recommend Mortgage Lenders whose acceptance criteria is flexible to your shorter business trading history.
Brokers can save you the considerable time and effort of applying for mortgages with lenders who are unlikely to accept you. They provide the best opportunity for those requiring more niche Mortgage Lenders, to secure a mortgage.