How to get a mortgage with 1 years' accounts
Are you recently self employed with only 1 years’ worth of accounts?
We're here to help. Although it can be more difficult getting a mortgage with 1 years accounts, it’s certainly not impossible, with many lenders specialising in self employed mortgages for people with little accounting history or income evidence.
Who can obtain this type of mortgage?
These types of mortgages are also available for self employed individuals who wish to purchase a buy to let property; for the owners of a business which has undergone recent structural changes; or even if you’ve only been self employed for 1 year and have bad credit.
Self employed remortgages are also available for personal or business investment and can be particularly useful if you’ve only been able to obtain a poor mortgage rate but now have additional accounts to enhance your affordability evidence or have improved your credit rating since the original mortgage was taken out.
If you’re looking to remortgage with 1 years’ accounts, this is possible because a remortgage follows most of the same procedures as obtaining a mortgage. The main difference is that lenders will also be able to assess whether you have equity in your property to enable you to remortgage or release equity from your property. A good history of repayments on your current mortgage will also help to demonstrate to lenders that you have good control over your finances and are a stable borrower.
If you have less than 3 years’ accounts, some lenders may feel that you don’t have enough background for them to get a thorough insight into your business or they cannot satisfy themselves that your income is stable enough to meet the repayment obligations.
Using a specialist self employed mortgage broker such as The Mortgage Hut can help in a variety of ways, not least of which is ensuring that you have all the documentation and evidence ready for your mortgage application, in addition to putting your details in front of lenders who are most likely to approve the application. This avoids wasting your valuable time with multiple declines which may also impact your credit rating.
Because we play by the book we want to tell you that...
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.
In 2011, self certified mortgages were banned because many borrowers had been approved for mortgages they couldn’t afford. Although these types of mortgages were only intended for use in very specific circumstances, the ease and lack of evidence required meant that far more borrowers than expected took advantage of this mortgage option.
Today, the regulator requires that lenders are far stricter in approving any mortgage application and that they run affordability checks before offering any sort of mortgage. In accordance with FCA regulations, lenders “must not accept self certification of income”.
Following this ban, most lenders now prefer self employed mortgage applicants to show at least 2 years’ worth of accounts before approving their applications, with the more financial history and stability they can evidence, the better. Some lenders will still consider applicants with 1 years’ accounts, however there are only a few lenders who are able to help with this. Today, many self employed mortgages will require a copy of your SA302 form. This can be downloaded from HMRC’s online portal or you can request a copy to be sent to you via post.
Some lenders will ask for additional evidence, such as a reference from a qualified accountant or your finalised accounts to help them accurately assess affordability. Here at The Mortgage Hut, we specialise in these types of mortgages, so even if you’ve been declined in the past, our expert advisors can help put you in touch with a specialist lender able to accept less financial history than many high street lenders.
Do I need to work in a particular area or industry?
A lenders’ job is to assess affordability, not judge your business model or industry except in very specific circumstances.
How much could I borrow?
If you’re the director of a company, this will include director salaries and dividends (if applicable) and any retained company profits. When it comes to getting a mortgage with 1 years accounts, you’re likely to require a specialist lender and will usually be able to borrow up to 5x your net income. If your self employed accounts don’t demonstrate a suitably accurate projection of your finances, some specialist lenders might look at your current figures as well as your accounts to obtain a more comprehensive picture of your financial situation.
An example of this would be a sole trader who has been trading for 18 months. A specialist lender could assess income based upon your accounts for the one full year you have and then consider your net income for the remaining 6 months. This method for calculating affordability is often used when current income exceeds the amount shown on your accounts and some underwriters may ask for a projection of your business income from an accountant to assist them with predicting future affordability.
If you’re unsure as to how much you might be able to borrow with a self employed mortgage, why not have a look at our mortgage calculator for an outline of what you may be able to expect. Please note, the calculator is only intended to provide an illustration and you should speak to an advisor to assess your specific affordability and repayment options.
Can I still get a mortgage if I have bad credit?
In the majority of cases, if you have limited accounts plus a bad credit history, you are going to require a larger deposit than most borrowers. This will generally be 15% or more for a minor adverse credit rating and will increase the worse your rating is. In addition to needing a larger deposit than standard borrowers, you’re likely to be charged a higher interest rate and other charges in order for lenders to minimise their risk in offering you the loan. That said, it’s not all bad news: even if you have a poor credit rating, this is easily improved over time by keeping up with your repayments and staying within any credit card limits.
Repairing any damage to your credit score is always a good idea, particularly if you want to remortgage into more favourable terms in the future. Staying within your credit limits, repaying as much of your outstanding debt as possible, ensuring you meet minimum repayments for any credit you’ve been given in the past each month and setting up direct debits for regular payments can all help in improving a poor credit score. If you’re self employed and have a poor credit rating, over time you should be able to improve your position, obtaining more years of accounts and evidence of income as time passes.
All of this will help you obtain a more favourable mortgage in the future. Speaking to one of our expert bad credit mortgage advisors can help you to determine the likelihood of being approved for a loan or mortgage, taking into account all of your personal circumstances.
Have a look at our mortgage calculator or give one of our specialist advisors a call to discuss your options for obtaining a mortgage with bad credit.
There are 3 credit reference agencies and different lenders will vary as to which agency they use so it’s best practice to check your score with all 3. You can usually obtain a full credit report from each agency once a year free of charge so you shouldn’t need to pay to obtain this vital information.
Being as transparent as possible with your self employed mortgage broker will help you obtain the best possible mortgage for your circumstances. Even if you have defaults, late payments or loan arrears in your name, it’s best to be upfront. Lenders are required to be thorough and this information is certain to come to light during the application process. Any attempt to hide or disguise it is unlikely to have a positive effect on the outcome.
You should also try to assemble the largest possible deposit to help demonstrate that you have sufficient financial stability. The higher your deposit, the greater the potential choice of lenders and products, in addition to which you will reduce repayments so you’re paying back a smaller amount over time.
Why not try our self employed mortgage calculator to give you an idea as to how much you might be able to borrow with a specialist lender.