Getting a mortgage when you’re self-employed became a little trickier following the end of self-certification, when mortgages were awarded based on a self-employed person’s declared earnings. In the current market lenders are required by regulation to seek proof of income, which is taken as evidence of a borrower’s ability to repay a loan, in order to show that they have lent responsibly.
Many lenders require three year’s business accounts to prove income – but what if you’ve been trading for less time than that? The good news is that it is possible to get a mortgage if you’ve only got one year’s accounts. You may need to shop around – possibly via a mortgage broker – but it can be done.
How do I prove my income?
Lenders will usually use either your accounts or your self-assessment SA302 year-end tax calculation as evidence of your income, and if using your accounts most will require them to have been prepared by a certified or chartered accountant.
How much can I borrow?
As a general guide, whether you are employed or self-employed, you can normally borrow a maximum of the equivalent of 5 times your proven annual income – although some lenders may consider less, such as the equivalent of 4 or 4.5. With one year’s accounts, you might typically be required to have a deposit of at least 10% available (or equivalent equity, if remortgaging) and the lender will typically look for a good credit history.
What if I have a less than perfect credit history?
It depends what the issue is. A lender would normally expect a borrower to have no mortgage arrears or county court judgments (CCJs) against them for a period of two years prior to the date of application. However, if your record shows limited missed and/or late payments in the previous year against credit card bills or store cards (for example), then they may still consider your application.
What if I want to borrow more than would generally be offered?
Under certain circumstances – for example, if you have an especially high income – and providing ability to repay can be shown, it’s possible the amount you can borrow may be increased.
Alternatively, supposing you are well into your second year of trading and are having a better year, you may be able to boost your borrowing based on your accounts for the current tax year, even if they haven’t yet been declared to HMRC – this will depend upon the underwriting policies of the individual lender.
For example, if your income in your finalised accounts for the previous year’s trading was £30,000, but you’ve already hit that figure nine months into the current year, then a lender may be prepared to accept projected figures provided by a qualified accountant when deciding how much to lend – that could make a difference between being able to borrow the equivalent of 5 x £30,000 (£150,000) and 5 x £40,000 (£200,000).
Who should I approach?
It’s often better to use the services of a mortgage broker who understands the particular circumstances of self-employed people. Encouragingly, some of the big high-street lenders are now open to considering mortgage applications from self-employed people with just one year’s accounts. There are also things you can do to make your life easier – here.