In general most mortgage lenders who are willing to lend to the self-employed will base their calculations for affordability and income level on more than one year on accounts, this is usually three years. The way lenders typically work out your income level is to use the figure from your drawing/income over the three years and take an average, they will then use this figure to calculate your affordability and how much they will allow you to borrow. This is typically how high street lenders will work. Getting a mortgage with one year of accounts is definitely possible. At Get Me My Mortgage our brokers have relationships with specialist lenders for the self-employed who are willing to lend to our clients that only have one year of accounts.
Our Network of Brokers have helped get mortgages for applications in the following circumstances
- Contractors with 12 month working history
- Sole traders trading for just 12 months
- Ltd Company directors trading for 12 months
- Any many more
If you have been declined by a lender or are struggling to find a broker that can help you get in touch! Our experienced self-employed mortgage brokers will be able to assess you circumstances and use their experience to find you a lender willing to consider your application. Give us a call on 0191 442 38 44 or fill in one of our enquiry forms now.
We get a lot of enquiries each month so we put together this article with some of the common questions we get asked. Read through our article and if you think you are eligible or you have a question we have not answered then get in touch!
In this article we will answer the following (this is general information and all information is subject to status
- How Long self-employed before I can get a mortgage?
- Why do self-employed people struggle?
- Trading under 2 years, can I get a mortgage?
- I have bad credit can I still get a mortgage?
- How much can I borrow?
- How do lenders access my income?
- Can I get a 95% mortgage if self employed
- Remortgaging with 1 years of accounts
How long self-employed before I can get a mortgage?
Many lenders are currently looking for 3 years’ worth of accounts verified by an accountant to prove your income. If you have applied through your personal bank you have been using for many years and have been declined don’t panic, the vast majority of high street banks will be looking for 3 years’ worth of accounts and if you don’t have that history yet they will automatically decline you. This doesn’t mean that you can’t get approved for a mortgage with another lender. There are lenders that will consider applications with less than 2 years account and there are even less that will accept 1 years’ worth of accounts. Luckily our experienced self-employed mortgage brokers have relationships with these lenders!
What if I have less than 1 years trading?
If you have just become self-employed or you are just about to finish your first year but have not yet completed your tax return it is unlikely that you will be able to find any mortgage lender that will consider your application. The reason that you are very unlikely to get a mortgage without a year’s accounts is because lenders will not be able to verify your income so they will not be able to responsibly lend. Since the credit crunch new regulations have come in for lenders to put more responsibility on them to ensure that their customers can actually afford their mortgages.
There are certain situations that you may be able to get a decision in principle before you have completed your first years trading, this will allow you to know that you can secure a mortgage once you have competed your first years trading. An example say you have been trading for 9 months and things are going very well and look like they are going to continue you can estimate with your advisor your likely salary and year end. This will allow you to be able to ensure that you will get approved, provided the actually figure when you have finished your year end is similar.
Why do self-employed people struggle to get mortgage?
Self-employed mortgages tend to be more difficult to get due to the level of difficulty for lenders to establish how income levels. This added difficulty raises the risk to the lender that the borrower may struggle or get into financial difficultly and not be able to pay back what they have borrowed. If you have over 3 years’ worth of accounts this risk is lowered due to the longer history of self-employment. This is why if you have more than 3 years’ worth of accounts there are more options and even many high street lenders will view you the same way that they would an employed applicant. If you have less than 3 years trading this is when the risk is increased and most high street lenders will decline your application as it falls out of there criteria and as most decision making with high street lenders is automated they are unlikely to hear you out or dig deeper into your circumstances to try and approve your application. This is where our network of brokers with relationships with specialist lenders comes in. Specialist lenders are more likely to lend to self-employed people with less than 3 years trading than a mainstream bank.
In the past it was much easier for self-employed people to get mortgage, this was due to self-cert mortgages. This financial product basically meant you could tell the bank what you were earning with no proof needed and you would be able to borrow a large amount. After the financial crisis rules were tightened and self cert mortgages were banned. This had a massive impact on the self-employed market. There are more niche lenders moving into this market which is helping our clients to get more competitive rates. With the rise in freelancers, contractors and start-ups the high street banks will need to adjust their lending to accommodate these kinds of customers or they will start to lose market share. Until then specialist lenders are the way forward for customers with less than 3 years accounts or complex incomes.
Trading under 2 years, can I get a mortgage?
If you have less than 2 years’ worth of accounts then you have the same options as if you had 1 years’ worth of accounts. There are a limited number of lenders but there are lenders that will consider mortgage applications for customers with less than 2 years trading history. In some certain circumstances a lender may consider projected figures. If you are nearly finished the second year trading and your income has increased since year 1 then it could have a big impact on the amount in which you will be able to borrow. If you are in this situation give us a call or fill in one of our enquiry forms to speak with an expert that can help you today.
I have bad credit can I still get a mortgage with 1 year of accounts?
There are lenders that will consider applicants with one year of accounts and adverse credit but there is criteria that will have to be met and some restrictions. You will need a larger deposit of at least 15% of the house value. You will also need to have had no defaults, CCJ’s or mortgage appears within the last 2 years (minimum). With late payments or missed payments within the last 2 years you may still be consider so it is worth getting in touch with one of our specialists if this is the case.
How much can I borrow?
Self-employed applicants will usually have the same borrowing ability to those that are employed. The usual maximum is 5 x incomes. This will depend on your credit score. If you are nearing the end of your second or third year of trading and you have seen an increase in your drawings/income then it may be possible (in certain circumstances) to get the lender to take this into consideration and use projected earning to make up the latest year of accounts. This would increase your average income and mean that you would be able to borrow more with the 5x multiple. This is a difficult process and it is best to speak to a specialist broker to get help with this.
How do lenders assess my income?
This will vary from lender to lender but in general almost all lenders will require finalised accounts verified by a qualified accountant or a self-assessment tax return . They will then use this figure to work out how much they are willing to lend. This will typically max out at 5x the figure for your income. If you have retained profits within the company then some lenders will allow this to be counted as your income and this again can make a big difference on how much you can borrow.
95% mortgage for self-employed with one year’s accounts
If you are looking for a 95% mortgage with one years’ worth of accounts it is possible especially if you are using the help to buy scheme. The help to buy scheme is available if you only have one year’s worth of accounts. The help to buy will mean you are able to buy with just a 5% deposit, this is subject to normal criteria and credit score. Again this is a specialist area and it is advisable to speak with an experienced advisor to help you secure this kind of mortgage.
Remortgaging with 1 year of accounts
Many of our clients come to use already being home owners and since buying their home have become self-employed. The original lender will assess you the same way as if you were taking out a new mortgage. This may mean that you will not be able to remortgage through your current lender. If you are moving off the initial rate its worth seeing what we can do for you to keep down your monthly repayments. Again this will work the same way you will need at least 1 year accounts signed off and a self-assessment tax return.
Get Specialist Advice
If after reading through some of our common questions you feel like you will be able to get a mortgage or you have further questions that we have not answered get in touch. You can either call us on 0800 368 8879 or fill in one of our enquiry forms now.