Getting a mortgage is the simplest when one’s income is simple to analyse and predict for the future.
For someone who has been working the same job for 5 years, it is easy to see the salary they earn and the rate it increases at, the frequency and value of their bonuses, and other benefits they have been regularly inquiring.
It becomes a simple matter of adding up all the components to obtain the income, compare it with outgoings, and reach an amount they are likely to be able to pay every month.
With those who are self-employed, however, it is not that simple. And for those
who have been self-employed for only a year, matters get trickier.
Can you borrow with relatively new business accounts?
In the past, the way to go about lending to a self-employed person was simply taking their word for their income, i.e. declared earning.
Self-certification is no longer acceptable now, and proof if income has become essential for lenders to be secure in who they lend to.
Most lenders rely on the last three years of the business accounts as evidence of their affordability and their ability to repay a loan.
If you have only had your business account for one year, however, it becomes rather tricky to find a lender.
The good news is that it still not impossible, and while options may be limited, a mortgage broker can help you find your way around and get the best deal possible.
How much can you borrow?
Income multiples for all sorts of employment are usually capped at 5x. For anyone who can prove their income, a 4.5 or more multiple rates is achievable.
The same applies to those who are self-employed. If a business account shows stable income, even it has only existed for a year, chances are you will get a decent mortgage multiple.
However, the stable and provable income must be supported with other pillars, like a big-sized deposit so as to make the lender feel secure; normally, a 10% deposit will do the trick.
If you would like to borrow more than would be usually offered in your situation, you can help your case with proof of high income; this will usually work for those whose profits are increasing at ideal rates, and losses are next to none.
When you apply in your second year of trading and have already made more money that you did at the same time last year, lenders are likely to be willing to give huge loans.
A good credit history and a file clear of IVAs or CCJs are also helpful; when you are already applying for a mortgage with just a year of business accounts, it does not help to have multiple other negative indicators on your file.
What happens is the credit history is poor?
What if you do end up in such a situation? What if you only have a year’s worth of business accounts to show, while your credit history is also tarnished by the likes of late or failed payments?
In such a case, the application may be considered if the offence appears minor; if, for instance, you only missed one or two small payments, your application may still be considered.
With other negative indicators like CCJs and IVAs, their seriousness, amount, and date will come into play; the older the CCJ, for example, the lesser the chance for it to affect your current application. The same goes for satisfied CCJs and cleared payments following late ones.
While it is certainly possible to get a mortgage with only one year of self-employment, this is still a complex situation and should be handled with the help of a mortgage broker so as to get the most out of your chances.
With a specialist, you might get more than you even expect!