Unlocking the Door to Self-Employed Mortgages with One Year’s Accounts

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Your Guide to Navigating the Mortgage Landscape with a Single Year of Self-Employed Accounts

Securing a mortgage can be a challenging task, especially if you’re a self-employed individual with only one year’s worth of accounts. Traditional mortgage lenders often demand extensive financial history, making the application process daunting for those with limited records. However, the landscape is not as bleak as it may appear. This comprehensive guide will illuminate the pathways you can tread to successfully acquire a mortgage on the basis of just one year’s self-employment accounts.

Challenges in Mortgage Approval for the Self-Employed

It’s an unfortunate reality that acquiring a mortgage becomes trickier if you’re newly self-employed. Traditional lenders often perceive a higher risk due to the unpredictability of income streams. This caution tends to result in either outright rejections or less-than-ideal mortgage terms. New businesses can fail and lenders have a duty to ensure you can repay the mortgage over the long term. That said, businesses come in many different flavours and so your prior expertise, knowledge, job history, trading status all factor into how feasible this will be. Some lenders recognise that working for yourself does not necessarily mean you are more risky, after all even though someone is employed, the business that employs them can cease trading too.

What Lenders Look For: Income Proof and Projections

The first step in getting approved is understanding what documentation is required. If you’ve been self-employed for only a year, a comprehensive set of certified accounts or your self-assessment tax record for that year (Tax Calculation and Tax Year Overview) is generally the bare minimum. Some lenders go a step further and request financial projections for the next 12 to 24 months, often validated by a certified accountant. These projections can serve to assure lenders about the sustainability of your income. However, this is where it can become complex because accountants wont be able to guess those numbers and cant certify income they are not confident in. If you have a years worth of future contracts locked in they will be more confident in providing projections than if if you were relying on assumed future sales. The details matter.

How Much Can You Borrow?

When it comes to the actual amount you can borrow, this figure is usually based on either your share of net profit or your total income as declared on your self-assessment tax return. For those registered as directors of a limited company, the calculation includes both the director’s salary and dividends, or if you have a larger amount of retained profit than you draw down, could be based on profit. In some cases even though you are operating a limited company, but have a single contract, you might qualify for a calculation based on day rate multiplied up by an assumed number of work weeks.

Some lenders may offer flexibility by considering projected income, especially if you can demonstrate that your earnings in the upcoming year will significantly surpass those of the past year. These projections need to be substantiated by a qualified accountant for a lender to take them seriously.

Comparing Mortgage Rates for the Self-Employed

It’s crucial to shop around and compare mortgage rates specifically tailored for the self-employed. Although your options might be limited compared to individuals with a longer financial history, specialized lenders often offer competitive terms to attract this demographic. Interest rates can vary widely, and a slight difference can have a significant impact on your monthly payments and overall loan cost. Whether you need a specialist lender, who are typically more expensive, depends on the type of income you receive, how likely projections are to be available and the job description.

Alternative Lenders: Specialised Solutions

Non-traditional lenders like Kensington Mortgages, and others often have bespoke products designed for individuals with unique employment circumstances. These lenders might ask for different types of documentation such as the latest 3 months’ business bank statements

Remortgaging for the Recently Self-Employed

If you’re considering remortgaging your property, you’ll face similar challenges to those encountered when applying for a new mortgage. The key is preparation. Equipping yourself with the necessary financial statements and consulting an expert can make the process smoother.

Wrap-Up: Summary and Key Takeaways

  • It’s indeed possible to secure a mortgage with just one year’s accounts when self-employed, though the process can be challenging.
  • Required documentation generally includes a year’s worth of certified accounts, tax records, and often, financial projections for the next year.
  • Specialized lenders offer more flexible options but do your due diligence to find the most competitive rates.

Pursuing a mortgage with a single year’s accounts as a self-employed individual is undeniably a tough journey. However, with the right planning, documentation, and professional guidance, that dream home can very much become a reality.

Picture of Author: Stuart Phillips

Author: Stuart Phillips

Fully CeMap qualified, Directly Authorised by the FCA and with over a decade of experience, Stuart has a wealth of experience in both specialist BTL and residential mortgages.

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