How to get a mortgage with 1 years' accounts

If you’re a company, sole trader, contractor or self employed individual, you should be able to apply for a self employed mortgage. The qualification used to determine whether someone is ‘self employed’ for this purpose is usually whether they own 20% or more of the business or company.

These types of mortgages are also available for self employed individuals who wish to purchase a buy to let property; for the owners of a business which has undergone recent structural changes; or even if you’ve only been self employed for 1 year and have bad credit.

 Self employed remortgages are also available for personal or business investment and can be particularly useful if you’ve only been able to obtain a poor mortgage rate but now have additional accounts to enhance your affordability evidence or have improved your credit rating since the original mortgage was taken out.

If you’re looking to remortgage with 1 years’ accounts, this is possible because a remortgage follows most of the same procedures as obtaining a mortgage. The main difference is that lenders will also be able to assess whether you have equity in your property to enable you to remortgage or release equity from your property. A good history of repayments on your current mortgage will also help to demonstrate to lenders that you have good control over your finances and are a stable borrower.

Before the credit crunch back in 2007, lenders allowed self employed borrowers to ‘self certify’ their mortgage applications; these forms gave self employed individuals the ability to specify their annual income without needing to supply any documents to prove where the money was coming from or how regularly this income was achieved.

In 2011, self certified mortgages were banned because many borrowers had been approved for mortgages they couldn’t afford. Although these types of mortgages were only intended for use in very specific circumstances, the ease and lack of evidence required meant that far more borrowers than expected took advantage of this mortgage option.

Today, the regulator requires that lenders are far stricter in approving any mortgage application and that they run affordability checks before offering any sort of mortgage. In accordance with FCA regulations, lenders “must not accept self certification of income”.

 Following this ban, most lenders now prefer self employed mortgage applicants to show at least 2 years’ worth of accounts before approving their applications, with the more financial history and stability they can evidence, the better. Some lenders will still consider applicants with 1 years’ accounts, however there are only a few lenders who are able to help with this. Today, many self employed mortgages will require a copy of your SA302 form. This can be downloaded from HMRC’s online portal or you can request a copy to be sent to you via post.

Some lenders will ask for additional evidence, such as a reference from a qualified accountant or your finalised accounts to help them accurately assess affordability. Here at The Mortgage Hut, we specialise in these types of mortgages, so even if you’ve been declined in the past, our expert advisors can help put you in touch with a specialist lender able to accept less financial history than many high street lenders.

When lenders consider mortgage applicants, they are generally only concerned with whether you have a sufficiently stable income to be able to afford your repayments for the duration of the mortgage term. In light of this, provided that you can prove a sustainable income is being generated by your business, lenders are unlikely to be too concerned about the nature of your business.

A lenders’ job is to assess affordability, not judge your business model or industry except in very specific circumstances.

Although your ability to borrow in the general market will be restricted if you only have 1 years’ accounts and bad credit, it may still be possible to obtain a mortgage. Firstly, it will be vital to ensure that you have a specialist mortgage advisor to assist you with placing your application before the right lender and that all the required information and evidence has been carefully prepared to give you the best possible chance of approval.

In the majority of cases, if you have limited accounts plus a bad credit history, you are going to require a larger deposit than most borrowers. This will generally be 15% or more for a minor adverse credit rating and will increase the worse your rating is. In addition to needing a larger deposit than standard borrowers, you’re likely to be charged a higher interest rate and other charges in order for lenders to minimise their risk in offering you the loan. That said, it’s not all bad news: even if you have a poor credit rating, this is easily improved over time by keeping up with your repayments and staying within any credit card limits.

Repairing any damage to your credit score is always a good idea, particularly if you want to remortgage into more favourable terms in the future. Staying within your credit limits, repaying as much of your outstanding debt as possible, ensuring you meet minimum repayments for any credit you’ve been given in the past each month and setting up direct debits for regular payments can all help in improving a poor credit score. If you’re self employed and have a poor credit rating, over time you should be able to improve your position, obtaining more years of accounts and evidence of income as time passes.

All of this will help you obtain a more favourable mortgage in the future. Speaking to one of our expert bad credit mortgage advisors can help you to determine the likelihood of being approved for a loan or mortgage, taking into account all of your personal circumstances.

Have a look at our mortgage calculator or give one of our specialist advisors a call to discuss your options for obtaining a mortgage with bad credit.