Being self-employed presents unique challenges, especially when securing a mortgage. However, there's no need to be discouraged if you've been self-employed for just one year. The good news is that mortgages are available and, with the right approach, you can secure a suitable deal.
Our guide will help you navigate the essentials of obtaining a mortgage with a single year of self-employment. From understanding your borrowing potential to gathering the necessary documentation, we provide the insights you need to succeed.
The Basics of One Year Self-Employed and Mortgages
Whether you are a sole trader, in a partnership, or running your own limited company, you will be considered self-employed.
Although some high street lenders are willing to provide mortgages to self-employed individuals with only one year of accounts, most require a minimum of two years of trading history. Consequently, you may need to consider niche-market specialist lenders who offer greater flexibility.
Changing Trading Styles? No Problem!
If you've recently transitioned from a sole trader to a limited company director, you might worry that this could complicate your mortgage application. Fortunately, if you can show consistent income from your business before and after the switch, it shouldn't negatively impact your chances. Lenders will look for a steady income stream and assess your overall earnings to determine your eligibility.
One Year Self Emloyed Required, Documentation for a Mortgage
To apply for a mortgage as a self-employed individual with one year of business, you'll need to provide specific documents, including:
Company accounts for your first complete year.
Tax calculations and tax year overviews - you can obtain these from your accountant or online via the Government Gateway
These documents help lenders understand your financial standing and assess your ability to repay the mortgage. You might also need to submit business bank statements to verify your recent revenue and that it supports your first complete year’s results.
I have a Poor Credit History, is this a problem?
No, not necessarily. Like any mortgage, adverse credit items such as bankruptcy, court judgments, defaults, or missed payments can make you seem riskier to lenders. This often limits options to niche lenders and may result in higher interest rates. However, many providers are still willing to offer loans.
The impact of poor credit on your mortgage application depends on the type of blip, how much and how long ago it occurred. Minor issues like missed phone bill payments may not matter much if they happened years ago, but recent defaults can present a challenge.
For additional details, please refer to our article 5 Tips for Securing a Mortgage with Less-than-Perfect Credit.
How Much Can I Borrow?
If you are a sole trader, lenders usually offer around 4.5 times your net profit. If you're a limited company director, this could be 4.5 times your share of net profit and salary or dividends and salary. Some lenders might offer more, especially if you have retained profits in your business.
4.5 times is a broad indication - some lenders can consider offering as much as 5.5 times but things like the term of your mortgage and any commitments you may have (loans / credit cards) will all have a bearing on the final amount offered to you.
For more information on this topic, read our article How Much Can I Borrow.
Deposit Requirements
While mortgages with as little as a 5% deposit are available, one year of self-employment might necessitate a larger deposit. The exact amount will depend on the lender's overall credit score assessment.
A larger deposit not only improves your chances of approval but can also secure a better interest rate and more lender options.
Conclusion
Securing a mortgage with just one year of self-employment can seem daunting, but it's certainly achievable. By understanding the requirements, preparing the necessary documentation, and exploring specialist lenders, you can find a mortgage that suits your needs. For personalised advice and guidance, consider booking a call with one of our expert mortgage advisors who can help you navigate the process smoothly.
Learn More
Ready to take the next step but still have some questions? Explore our Learning Centre for comprehensive information on the home buying and mortgage process.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Published by Beechwood Mortgages Ref: 219335 with review and approval from Stonebridge Mortgage Solutions Limited who is authorised and regulated by the Financial Conduct Authority Ref: 454811.
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