Finding a mortgage will be difficult as a self-employed applicant with just one-year of finalised accounts, rather than a self-employed applicant with three years or more of finalised accounts. High Street Banks and Building Societies will require additional evidence of income, and the process of proving income might be complicated.
Good payment history will assist day-rate contractors in demonstrating that mortgage payments can be maintained without difficulty. If there are credit issues some Lenders may still consider the application but the options become more limited.
A sole trader or self-employed company director operating through a limited company who owns more than 20% of the shares will qualify for a mortgage. These mortgages will be available for both buy-to-let and residential properties.
If self-employed applicants or sole traders have completed twelve months’ trading in a tax year, then as a Specialist Mortgage Broker, we can help them obtain a mortgage even with just one year’s accounts. There are Lenders who specialise in mortgages with one-year’s accounts.
For a self-employed applicant, the profit share after tax or net profit for the year and the director’s salary is used to prove income. However, a Mortgage Lender will likely require a forecast for the following year, as well. A qualified accountant will be able to provide an estimate of the future figures if this is required.
The Lender might also need to see evidence of the sustainability of the future income of the company. However, with just one-year’s accounts, Mortgage Lenders cannot be confident of this. Therefore, in the case of a residential mortgage application, they would seek other validations such as the history of employment in the same line of work, and your curriculum vitae may be required.
As for a buy-to-let mortgage, landlord experience will undoubtedly be a supportive factor in ensuring a robust application.
The mortgage affordability assessment may vary from Lender to Lender. Several Mortgage Lenders use share of profit after tax or net profit and director’s salary, while other Mortgage Lenders use share of profit before tax and director’s salary.
The mortgage affordability assessment will not solely be based on income. Other outstanding commitments, credit score, mortgage term, loan-to-value ratio, etc., will also impact the affordability assessment.
Since people’s circumstances differ, it’s important to look at each case individually and assess affordability after considering all the relevant factors.
Mortgage borrowing for self-employed applicants can be quite tricky with just one-year’s accounts and bad credit, especially if they approach an average High Street Lender or Building Society. This is because most average Mortgage Lenders require at least two years’ annual accounts. However, securing such a mortgage can be possible with specialist mortgage advice.
Generally, when there is bad credit Lenders require a larger deposit. Also, the interest rate charged will be higher. This is because Mortgage Lenders need to cover the perceived additional risk involved in offering a mortgage to contractors in those circumstances.
Self-employed applicants can improve their credit score by maintaining payments on time, setting up Direct Debits, managing their credit, keeping borrowing within limits, etc. It is advisable to work to improve your credit score over time.
A Mortgage Lender’s affordability assessment will be based on income, liabilities, credit score, and other relevant factors. The amount that can be borrowed can be increased by extending the mortgage term, paying off credit cards, and settling any outstanding loans.
Yes; as a self-employed applicant, arranging a remortgage with one-year’s accounts is possible. The Mortgage Lender will use the director’s salary and share of profit to calculate income with one-year’s accounts.The Mortgage Lender will also require a projection of income for the coming year; based on these numbers, a remortgage can be possible.
Even with just one year of self-employed accounts, applicants will be able to apply for Help To Buy equity loans. Income affordability will be based on individual circumstances.
It’s a good idea to prepare accounts before applying for a mortgage, to avoid delays. Also, you should ensure that your credit score is in good shape.
Our Mortgage Advisors will be able to provide an optimum solution by analysing each individual’s circumstances.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage payments.