Do you really have to wait years before you can be considered for a mortgage again? No, some progressive lenders will take you on with only 1 years accounts!
So, you made the leap into self-employment. Its liberating and incredibly stressful all at the same time. It can also be extremely lucrative, and one would assume that that would be viewed positively by most lenders. Unfortunately, lenders in the UK still struggle to understand self-employed customers, and more importantly we believe they massively overestimate the risks in comparison to those who are employed. The reasoning is often that those who are employed have a much more stable income, however the risks of illness and injury are the same across industries, and whilst workers have rights under employment law, you can still be sacked if you don’t perform, don’t turn up or act against the companies interests.
Here we explore why this is, and what you can do if you only have 1 years accounts.
Why is it so complex?
In the UK according to the Office of National Statistics around 13% of the working population is considered self-employed. That’s not a small proportion at all, and is growing consistently.
Whilst there isn’t a bias against those who are self employed from lenders, the documentation required to prove income is extremely complex, and its this requirement that makes it so difficult. In fact, significant numbers of people consider going into employment simply to increase their ability to secure a mortgage.
From a lender perspective, company structures can easily obscure larger problems within a business and they often want to see not only the personal tax returns from clients, they might also request limited company accounts also. For this reason, lenders tend to want to see at least two years accounts, in some cases even three. And this means that for someone who has just gone self-employed, they might need to wait well over 2 years before they can start even applying for mortgages.
There is a huge amount to be said in relation to self employed mortgages, and those who are contractors can use a scheme that allows the day rate to be considered. Those who don’t draw all their profits out of the company, but could, and want to be able to borrow against that ability can do so by finding a lender that considers retained profits.
In this section however we address those who have just started in self employment and look at the lenders who will consider then as soon as they have been self-employed for 12 months or have one year’s accounts. We also consider those who do the above, but with some caveats, which we explore.
True 1 years accounts.
Looking at the table below we can see that there are at least seven lenders who only need one year’s accounts in order to assess a mortgage. These lenders are typically more expensive, however, given the cost of renting, and rising house prices, the two years spent on a slightly more expensive mortgage is almost certainly cheaper than two years paying sky high rents! Add to that, after two years its likely that that deal can be renegotiated to a better rate elsewhere.
What does 1 years accounts mean?
The one years accounts that lenders typically require refers to a pair of documents called a Tax Year Overview and a Tax Calculation. These are explained in more detail in the links, but generally the calculation is a summary of the income declared personally to HMRC, and the tax Year Overview is a receipt for the tax actually paid. The lender uses the latter to validate the former, i.e. if you paid the tax, then they can be confident that the amount you declared is correct. These can be produced after the 5th April each year which is the personal cut off date.
Most will expect applicants to have been in self employment for at least a full 12 months also though. It should be noted, and this is very important, that if you want to submit a return after April, even though you might not need to pay the tax due until January the following year, if you want to use it for mortgage purposes it needs to be paid!
What if I just went self employed but I’m doing the same role?
Where we say “previous line of work” in the table below, we mean this. That the applicant needs to demonstrate that they are doing the same role, in the same industry. An example might be accountant, someone who was employed, has qualifications that define their role and the job entails the same things whether employed or self employed would be considered by these lenders within the 2-year period. Someone who was a PE teacher, but then becomes a self-employed fitness instructor wouldn’t be considered.
Can’t my accountant vouch for me?
Sometimes. Some lenders will want an accountant to confirm there is a longer-term revenue stream, but its rare that they will lend against the projections themselves. In fact, one of the wider issues is that the wording on references is usually very strict, and it can be difficult for an accountant to know 100% that revenue will be what they predict. We find often it’s an accountant’s reluctance to put pen to paper that causes some issues as they can often only confirm revenue for work that’s already been completed, not estimate what you might pick up in the future! If you have 2-3 large long term contracts with clients this might be easier as the contracts likely guarantee some stability, as opposed to a shop where every day’s sales is going to be different.
What should I do if I’m self employed and thinking about a mortgage?
Speak to us!
As a business owner ourselves we understand what it means to be self-employed, we understand limited companies and sole traders and we understand the lenders and their criteria. As you can see below there are options, and the sooner you pick up the phone and ell us about your situation, the sooner we can give you the knowledge you need to plan you new home! There are 50+ lenders available and our job is to understand your unique circumstances and find you a loan. Call 0207 183 1101 or get in touch via live chat below!
Frequently Asked Questions
Startups.co.uk have an excellent write up on the process of submitting accounts for your company: https://startups.co.uk/how-to-keep-accounts/
Click here to view lender matrix
|Aldermore||Only with perfect credit for 3 years|
|Bluestone Mortgages||True 1 years accounts|
|Chorley Building Society||Minimum 18 months trading|
|Dudley Building Society||Accountants reference required|
|Family Building Society||Previous line of work only|
|Halifax Intermediaries||Accountants reference required|
|Harpenden Building Society||Accountants reference required|
|Kensington Mortgage||True 1 years accounts|
|Loughbrough Building Society||On specific products only|
|Mansfield Building Society||On specific products only|
|Marsden Building Society||Previous line of work only|
|Masthaven||Minimum 18 months trading|
|Newbury Building Society||Previous line of work only|
|Newcastle for Intermediaries||True 1 years accounts|
|Pepper Money||True 1 years accounts|
|Precise Mortgages||True 1 years accounts|
|Scottish Widows||Accountants reference required|
|The Cambridge Building Society||On specific products only|
|The Mortgage Lender||True 1 years accounts|
|Together||True 1 years accounts|
|Vida Homeloans||True 1 years accounts|