Getting a Mortgage with One Year’s Accounts
If you are self-employed or a director of a limited company you may be finding it difficult to find a mortgage product. This can be exacerbated if you have limited accounts or have been trading for a short time.
The good news is mortgage lenders are becoming more flexible for self-employed people and company directors. Most lenders will accept two years’ worth of accounts for a mortgage and there are a handful of lenders who accept one years’ accounts.
This guide breaks down everything you need to know about getting a mortgage with one years’ accounts.
Can You Get a Mortgage with One Year’s Accounts?
Yes, there are a limited number of lenders who can accept one years’ accounts for a mortgage application.These will need to be a complete set of accounts and cover an entire 12-month period.
If you have only recently become a company director or are newly self-employed you will need to wait at least 12 months before you can apply for a mortgage. You will also need to have your accounts made up for that 12-month period and filed with HMRC (and companies house for LTD companies).
How to Get a Mortgage with One Year’s Accounts
Once you have a years’ accounts under your belt you should contact a mortgage broker.
Most high-street lenders will only accept two or more years’ accounts, so you will not be able to compare the mortgage market on your own if you only have one years’ accounts.
What’s more, some of the lenders who accept one years’ accounts are building societies with only local branches.
A whole of market mortgage broker will have access to a range of lenders that accept one years’ accounts and be able to find the best rate and mortgage product for your circumstances.
To make the process easier you should have your accounts ready in advance of contacting a mortgage broker. Although, if you are in the early stages of looking for a mortgage you can contact a broker in advance of submitting your tax return.
How Much Can I Borrow with One Year’s Accounts?
All lenders conduct affordability calculations which is a type of stress test to ensure you can afford the amount you are intending to borrow.
Some lenders have very strict affordability criteria, only allowing you to borrow 4 times your annual income. Most lenders allow you to borrow up to 4.5 times your annual income and a few even allow you to borrow 5 times your annual income.
Each lender calculates your income in different ways and your affordability will also be assessed on your expenditure as well.
For example, if you have a car on finance, the amount you pay monthly or the total balance owed (depending on the lender) will impact the amount you can borrow.
Likewise financial commitments like child support or spousal support can also lower your affordability calculation. Some lenders are more favourable when assessing this type of commitment compared to other lenders.
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How Do Lenders Calculate My Income?
The amount you can borrow will be determined by the level of income shown on your Tax Calculation if you are self-employed.
If you are a company director, your accounts will be assessed in one of two ways:
- Your salary and dividends
- Your portion (by shareholding) of the company’s net profit
The reason some lenders will allow net profit figures for income is some company directors choose not to draw down on salary and dividends, instead opting to keep the money in the company. Of course, this money is still technically available to a company director and some lenders will accept this as income.
Some lenders will not allow you to use net profit, which is another reason to seek help from a mortgage broker who can find the lenders who are best for your financial situation.
Proving Income with One Year’s Accounts
You will need to provide your Tax Calculation and Tax Year Overview which are documents outlining your declared income and tax for the latest tax year. This is regardless of being self-employed or a company director.
The exception to this is if you have approached a lender who will accept just your company accounts, but those lenders are few and far between.
Your company accounts will then be supplied instead of a Tax Calculation and Tax Year Overview. In most cases, for company directors using net profit a lender will request both your company accounts and your Tax Calculations & Tax Year Overviews.
In cases where the lender is unsure of your business profitability on an ongoing basis, they may request an accountant’s letter to state your business has no ongoing concerns that could impact the mortgage and income levels will remain the same or increase.
You can’t self-certify on a mortgage and a lender will rarely accept just an accountant’s letter as evidence of income for a mortgage. In situations where a lender does accept an accountant’s letter, the accountant will need to certify it and have certain qualifications.
What Our Clients Have To Say
Remortgaging with One Year’s Accounts
If you are remortgaging and have changed occupation or become self-employed during your mortgage deal you may find it difficult.
This is especially the case if your income was previously Pay as You Earn (PAYE). When you are PAYE you do not have the luxury of claiming much in the way of expenses and self-employed people often find when expenses are offset against their tax bill their net profit (or take home pay) is lower.
In instances where you have become self employed or started (or joined) a limited company as a director you should contact a mortgage broker in the first instance to see what options are available to you.
Specialist Self-Employed Mortgage Advice
There are still barriers to entry for self-employed people and company directors and it can feel intimidating trying to understand the mortgage market.Thankfully with a specialist in self-employed and company director mortgages, this daunting process can be simplified to a large extent.
Boon Brokers is a UK-based Whole of Market Mortgage, Insurance and Equity Release Brokerage. We provide fee free mortgage advice and have the expertise to assist with self-employed and company director mortgages. Book your initial consultation with us today.