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Can You Get A Self Employed Mortgage With Only One Year's Accounts?
The short answer is: yes, you can get a self employed mortgage with only one year's accounts.
But it is generally more difficult than if you have several years of accounts, as you'll have fewer lenders to choose from. It could also be more expensive, because lenders may offer you higher mortgage interest rates to offset the extra risk.
So, while it’s possible to get a self employed mortgage with only 1 year’s tax return, you may be at a disadvantage compared to those with multiple years of income history.
Those with a firmly established business or who've been self-employed for several years will typically be a safer option for lenders. So, they might get accepted easier and get better interest rates.
But it doesn't mean getting one with only 1 tax return is impossible.
There are mortgages out there for the self employed with more flexible criteria.
And if you approach it the right way, you can get a self employed mortgage with only one year’s accounts.
There are lenders out there willing to consider applications; lenders who understand the nuances, potential, and income status of a newly started business or self employed role.
It's just a question of speaking to the right ones in the right ways.
Why is It Difficult to Get a Self Employed Mortgage with Only 1 Year’s Accounts?
With only a year’s worth of tax returns, it’s more difficult for lenders to determine the affordability of your mortgage.
They’ll be concerned with the risk of lending you money: a lack of evidence for steady, reliable income could affect your ability to keep up with monthly repayments. And this isn’t good for you or them.
Additionally, there are no specialised mortgage products suited to self-employed people.
In other words, you’re applying for the same mortgages as employed people who have guaranteed, long-term incomes, placing self employed people at the bottom of the list when it comes to borrowers in the market.
Despite this, there are specialist lenders available, and mortgage brokers to help you find them.
How Much Can I Borrow?
While it will always vary depending on your individual circumstances, our self employed mortgage calculator can give you an indication of how much you can borrow based on your income.
If your income has changed over the last two years, lenders will typically take an average of your two latest annual income figures – but there can sometimes be wiggle-room on this.
How to Get a Self Employed Mortgage With 1 Year’s Accounts
Similar to getting a better self employed mortgage, here are our top tips for improving your chances of getting a mortgage with only 1 year's accounts:
Proving your income
Self employed earnings can only be proven by specific tax documents from HMRC. To successfully apply, you’ll want as much evidence as possible to prove your financial situation.
The main documents you need for a self employed mortgage are:
- Your SA302 (Tax Calculation)
- Your Tax Year Overview
Even if you only have one year's worth, getting these ready in advance is essential for speeding up your application.
See our guide on where to find and download the right documents from your HMRC online account.
Get an accountant
Proving your projected income can be another way of improving your mortgage application.
To do so, it’s a good idea to seek the help of a qualified accountant.
A certified projection by an accountant is often necessary in your mortgage application, and it will greatly improve your chances. It gives your income the ‘seal of approval’ from a qualified professional, which is attractive from a lender’s perspective.
There are a few key things to remember when calculating your projected income and what might be appealing to lenders:
Tax efficiency – if you own a limited company, in some cases, taking 100% of your income as salary isn't the ideal income structure for tax purposes. Instead, a mixture of salary, dividends and director’s loans can be more tax-efficient.
But a lender’s criteria may contradict this. Some banks still prefer to use pure salary for their mortgage underwriting calculations and don’t like the complications of multiple sources. If you’re concerned about this, consider speaking to a mortgage broker that specialises in self employed mortgages, such as ourselves.
Company Cash – make sure you consider the cash flow and capital within your business when you apply for your mortgage.
Some lenders can even take into account your company’s profits for your mortgage application.
If you speak to the right mortgage lender, these finances can be treated as income or capital you’d be able to draw upon for your mortgage repayments, allowing you to borrow more.
Not all lenders will accept this - but a mortgage broker could help you find the ones that do.
Improve your credit rating – improve your chances
Whether you’re employed or self employed, a higher credit rating makes you more favourable in the eyes of lenders.
A solid credit history can go far, especially when it comes to a self employed mortgage application.
Ironing out any issues that could flag up on a credit check or be cause for concern for lenders is a great step to prove you’re a reliable borrower.
Here are a few ways to mitigate a poor credit rating:
- Setting up direct debits for your bills is convenient and could improve your credit rating.
- If you have credit cards, pay them off regularly and on time.
- Try to avoid using your overdraft – especially if it’s unarranged.
- Organize your old bank accounts and close those you’re not using.
- Make sure to unlink yourself from former partners (you may not realize your financial ties still exist).
Additionally, using a credit score application, such as Experian Boost, can help boost your score when you connect your bank or credit cards.
Your credit score will increase simply through paying for subscription-based services, like Spotify or Netflix, or even through paying Council Tax.
Moreover, if you’re self employed and seeking a mortgage, you’re likely to be renting.
In which case, the Rental Exchange Initiative can prove a helpful scheme in bolstering your credit score, as it allows your rental payments to be recorded on your credit file.
A bigger deposit means less borrowed
The more you put upfront towards your house purchase (your deposit), the less you’ll need to borrow through your mortgage.
The benefits of this are twofold:
- Lenders are more willing, as less money borrowed mitigates risk.
- You’ll get a better loan-to-value ratio (LTV), and so potentially better interest rates.
How to Get a Self Employed Mortgage
When it comes to self employed mortgages, you can overcome many of the hurdles you might face through the expert advice of a specialist mortgage broker.
At Clifton Private Finance, we can search the entire market to find the most suitable deal for your circumstances.
And, we have access to specialist lenders, those willing to accommodate unique, self employed, contractor and freelancer mortgage applications, such as those with only one year’s tax returns.
Through us, you can save time, bypassing the frustrating experience of trying to get your application through or locating the best lender on your own.
To see what we can do for you, give us a call at 0117 959 5094 or book a free consultation below.
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