Article created by Christian Duncan, Director – Mortgage and Protection Adviser
Last updated 29th December 2023
Table of Contents
Getting a mortgage with one years self employed accounts
In a world of ever-growing entrepreneurship and self-employment, home buying can sometimes feel like an uphill battle. This can be especially challenging for self-employed individuals in the UK whose accounts history doesn’t stretch past the past year. However, have no fear! This comprehensive guide will help you understand self-employed mortgages.
Entering the property market can be a challenging venture, especially for self-employed individuals who may find that the path to mortgage approval difficult without the correct advice. The self-employed borrower traditionally faces scrutiny through lenders’ eyes, as the stability of their income is often brought into question. This article aims to dispel some of the concerns surrounding obtaining a mortgage with just one year’s worth of accounts, highlighting that with the right guidance, even those with a shorter trading history can secure a foothold on the property ladder.
The Challenge for the Self-Employed Homebuyer
For the salaried individual, presenting proof of income to a potential lender is a straightforward process. However, the self-employed, freelancers, and company directors are typically required to showcase a more extended period of financial stability, often up to three years of accounts. But what happens when you have been trading for only a year? Is a mortgage out of reach? Yes!
Understanding Mortgages for Self-Employed Individuals with 1 Years Accounts
Being self-employed essentially means that you earn a living by working for yourself, either as a freelancer, independent contractor, or as a sole trader operating your own business. Unfortunately, this status can often be seen as a ‘high-risk’ by mortgage lenders because income can be irregular and unpredictable.
Today, there is notable flexibility in the mortgage sector, and self-employed individuals are being acknowledged for what they really are – dedicated, hardworking people in need of a mortgage that suits their unique financial circumstances.
The Challenge of 1 Year’s Accounts
You might be wondering, why is it difficult for self-employed individuals with only 1 year’s accounts to secure a mortgage? Traditional lenders in the UK usually require two to three years of accounts history as proof of regular income. This is where it gets tricky for self-employed with less than 2 years’ accounts history, but it’s not impossible!
Solutions within Reach
There are mortgage lenders in the UK who are comfortable lending to applicants with only one years self-employed accounts. While they will still request documentation, such as a tax return or business bank statements, they assess these applications on a case-by-case basis, providing a glimmer of hope for first-time self-employed homebuyers.
What documents will a lender want to see?
If you were employed, you can expect to be asked for your latest three months’ payslips if paid monthly. If you’re paid weekly, then the latest thirteen weeks should suffice.
Because lenders accept that a lot of business’s go through peaks and troughs of work you they are likely to want to see the following documents for all applicants.
- 3 Months Business Bank Statements
- 3 Months Personal Bank Statements
- 1 Years SA302’s and corresponding Tax Year Overviews (having more than one years will open you up to more lenders)
- ID Documentation
Bad Credit and Self Employed
Being self-employed and having bad credit are two major factors to consider when applying for a mortgage. Lenders are likely to want to understand what lead to the bad credit and asses your credit profile to see how you’ve conducted your bank accounts and finances since. The Manchester Mortgage Centre have helped several clients who bad credit who are self-employed secure mortgages over the years. Depending on the severity of the bad credit you can expect to pay a slightly higher rate of interest but it’s our job to find you the most competitive rate based on your circumstances.
Top Tips for Self-Employed First-Time Buyers with 1 Years accounts
Securing a self-employed mortgage can be a stressful time for most. Particularly whilst trying to keep a business afloat. Here are a few tips to help to process run smoother…
- Keep your accounts updated: Ensure your accounts are up-to-date and prepared by a certified accountant.
- Evidence of contracts: If your work is contract-based, retain evidence of future contracts as proof of potential earnings.
- Improve your credit score: A high credit score adds credibility but isn’t essential.
- Big deposit: A considerable deposit. This will help boost affordability, open you up to more lenders and help mitigate the risk a self-employed applicant poses to any lender.
A Ray of Hope
Contrary to popular belief, obtaining a mortgage with a single year’s accounts is not only possible but increasingly prevalent. With the rise of freelancing and entrepreneurship, lenders have begun to adapt their criteria, acknowledging the changing landscape of employment and income.
The Self-Employed Mortgage Journey
Whether you are a sole trader, in a partnership, or running a limited company, the road to securing a mortgage begins with a fair assessment of your financial status:
Proving Your Income
Lenders are keen on evidence. A common method of proving income is through an SA302 form or a set of accounts validated by a certified or chartered accountant. Your income will typically dictate the loan amount, with a handful of lenders offering up to five times your annual earnings.
With one year’s accounts, you may need a more substantial deposit, sometimes at least 10%, to gain the lender’s confidence. A healthy deposit signals commitment and reduces the lender’s risk exposure. The higher your deposit amount the more lenders will entertain your mortgage application.
Your credit history also comes into play. Clean finances and a good track record of managing debt will work in your favour. Lenders may consider occasional slip-ups, but they are generally looking for a reliable pattern of repayment.
Exploring the Market with Experts
An invaluable asset in your quest will be the expertise of seasoned mortgage advisers, such as the team at the Manchester Mortgage Centre. We can provide access to exclusive products and have the inside track on lenders amenable to clients with shorter trading histories.
Specialty Lenders and Bespoke Deals
High street banks may not always be the answer for the self-employed with one year’s accounts. The landscape is filled with specialty lenders who, while not advertising their products directly, are accessible through mortgage brokers.
Why Work with a Mortgage Broker?
Working with a broker can unlock several benefits:
- Insight into exclusive deals
- Advice tailored to your unique circumstances.
- An informal evaluation of your borrowing potential
- Access to Pre-Underwriting Tools and Contact
Lenders value projections, assets, and your prior employment, especially if it aligns with your current self-employed role.
Can I get a mortgage with 1 year of accounts?
Yes, with specific lenders who understand and cater to self-employed individuals’ unique situations.
How many years of accounts are typically needed for a mortgage?
Most lenders look for two to three years, but options are available for one year’s accounts.
Can you get a mortgage on a 1-year contract?
Some lenders offer contractor mortgages, assuming your income is stable, and you can demonstrate industry experience.
Final Thoughts: Moving Forward
If you’re self-employed and have just one year’s accounts, be reassured that the mortgage landscape is evolving. While challenges exist, the opportunity to purchase a home is more accessible than ever, thanks to specialised lending solutions and expert advisors who understand your situation.
Whether you’re looking to calculate your borrowing potential, obtain specialist mortgage advice, or simply explore the market, organization’s like The Manchester Mortgage Centre are ready to assist you. Reach out, start the conversation, and take one step closer to owning your dream home/.