Being self-employed and hunting for a mortgage can often feel daunting, particularly if your accounts only stretch back for a year or two. More traditional high street banks and lenders might shy away from wagering on your business earnings, favouring instead the perceived security of a steady, salaried job and a more extensive employment track record.

But don’t lose heart. This all-inclusive guide to Self-Employed Mortgages is here to equip you with the essential information to navigate the mortgage landscape tailored to individuals like yourself.

Deciphering the Challenges

Before embarking on your mortgage application journey, it’s crucial to get a general understanding of the obstacles that self-employed persons often encounter. The majority of lenders depend on proof of income to establish your capability to handle monthly repayments. If you’re a sole trader or a limited company director with only a single year of certified accounts, your trading record and annual income figures might not persuade mainstream lenders of your ability to sustain a steady income. Nevertheless, with an experienced mortgage broker at your side who specialises in dealing with applications from self-employed individuals, these hurdles can be successfully navigated.

The journey towards securing a mortgage for self-employed borrowers can be intricate, necessitating additional accounts, business planning documents, and more. However, a host of specialist lenders and brokers have dedicated their expertise to assist individuals like you. These experts have developed underwriting policies that understand the unique circumstances associated with self-employed income, accommodating business profit fluctuations and the need for tailor-made calculations.

The Integral Role of Mortgage Brokers and Specialist Lenders

A seasoned mortgage broker can offer invaluable mortgage advice customised to your particular situation. They provide access to a plethora of mortgage deals spanning the entire market, inclusive of exclusive products from specialist mortgage lenders that may not be readily available to the public. These brokers also assist in streamlining the underwriting process, ensuring all necessary documents like tax returns, SA302 documents, and business accounts are prepared accurately and efficiently.

These specialist lenders comprehend that self-employed individuals’ income may not be as stable as those in salaried employment. For instance, a chartered accountant or a contractor might experience some months of higher income and others of lower earnings. They assess your affordability in a more comprehensive manner, taking into account your business records, personal bank statements, and company bank statements. They are more likely to consider a shorter trading history, lower annual earnings, and the intricate income structures of a limited company.

Income Assessment and Affordability Checks

Whether you’re a sole trader, limited company director, or contractor, the evidence of your income will play a pivotal role in the mortgage application process. Lenders typically seek a record of sustainable income. For a self-employed applicant, this could comprise a blend of your personal salary, stated salary, business income, and even future income predictions made by a qualified accountant.

Lenders use affordability calculators to assess your maximum mortgage borrowing capacity. This calculation typically takes into account your average income, current income, and projected future earnings. It’s important to note that each lender might have different criteria regarding borrowers and what they define as ‘income.’ This is where an expert advisor can offer specialized advice and ensure that your income is presented in the most favourable light.

Credit Score and Mortgages for Those with Bad Credit

Your credit record is another key aspect lenders consider. Late payments, outstanding debts, or mortgage arrears can lead to a bad credit history, potentially reducing your chances of mortgage approval. However, there are specialist mortgage brokers and lenders who deal with bad credit mortgages. They may consider other factors like a larger deposit, your current figures, and evidence of a healthier business bank account. Your credit card limits, direct debits, and any credit card debt would also be considered as part of the overall financial history assessment.

The Significance of Deposit

As with any mortgage, the requirement of a deposit is crucial. The average deposit required by high street banks can often be higher for self-employed borrowers due to perceived risks. However, certain specialist lenders may offer competitive rates with a minimum deposit, especially if you can show a consistent profit in your company accounts or a clean credit history.

Property and Various Types of Mortgages

Once you’ve secured a mortgage agreement, it’s time to step onto the property ladder. It’s essential to remember that various types of mortgages are available – residential mortgages, commercial mortgages, and even Equity Loans. Your choice should align with your current financial status and future business projections. A mortgage broker can guide you through this process, helping you select a suitable deal from a broader choice of lenders and mortgage products.

Steering Through the Process

Applying for a mortgage as a self-employed individual need not be intimidating. By partnering with a specialist broker, you can access a wide range of specialist lenders and mortgages tailored to contractors, directors, and sole traders. These brokers can also assist with tax calculations, offering advice on obtaining necessary documentation, such as self-assessment tax return figures and business accounts. They can provide a realistic assessment of your chances for mortgage success and even go the extra mile to negotiate better terms based on your trading style and income.

In conclusion, self-employed individuals with one or two years’ accounts should not be deterred from seeking a mortgage. By joining forces with experienced mortgage brokers and understanding the myriad options available, you can navigate this journey with ease. Always remember, you’re more than just a ‘self-employed mortgage applicant’; you’re a unique individual with unique circumstances, and with the right advice and support, stepping onto the property ladder is within your reach.

Damian Youell

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Can I get a mortgage with one year’s accounts?

Yes, it is possible to get a mortgage with one year’s accounts. However, you will likely need to go through a specialist lender and you may have to pay a higher interest rate. You will also need to have a good credit history and a large deposit.

What are the benefits of getting a mortgage with one year’s accounts?

There are a few benefits to getting a mortgage with one year’s accounts. First, you may be able to get a mortgage sooner than if you had to wait for three years of accounts. Second, you may be able to get a mortgage even if you have a limited credit history. Third, you may be able to get a mortgage even if your income is not as stable as someone who has been self-employed for longer.

What are the drawbacks of getting a mortgage with one year’s accounts?

There are a few drawbacks to getting a mortgage with one year’s accounts. First, you may have to pay a higher interest rate. Second, you may have to put down a larger deposit. Third, you may have fewer options when it comes to lenders.

What factors do lenders consider when approving a mortgage with one year’s accounts?

Lenders will consider a number of factors when approving a mortgage with one year’s accounts. These factors include:

  • Your income and earnings history
  • Your credit history
  • The size of your deposit
  • The type of property you are buying
  • The length of your mortgage term

How can I increase my chances of getting approved for a mortgage with one year’s accounts?

There are a few things you can do to increase your chances of getting approved for a mortgage with one year’s accounts. These include:

  • Get a good credit history.
  • Put down a large deposit.
  • Choose a shorter mortgage term.
  • Get pre-approved for a mortgage before you start looking for a property.
  • Work with a mortgage broker who specialises in mortgages for self-employed borrowers.

About The Author

mortgage broker damian youell

See some of Damian’s client reviews below

Damian is an experienced mortgage broker, founder of Ltd and company director. With over a decade working as a mortgage broker he has a strong understanding of hard to place mortgage cases. With hundreds of 5 star client reviews. hundreds of repeat clients his work speaks for himself.

He started as a one man band with the philosophy of putting clients needs ahead of his own. This ethos of offering excellent customer service has helped the business grow over the years. He gets satisfaction on getting cases pushed through to offer stage where other mortgage broker and companies have failed.

Throughout his time as an adviser he has carved out a niche area of advice helping clients with their business protection requirements too. Having helped hundreds of client with Relevant Life Policies, Shareholder Protection Insurance, Keyperson Policies and other important protection requirements of large to small businesses.

At home he is a family man and likes to spend his time with his four children and wife Lisa. He enjoys going on holidays spending time with friends and going for walks.