Mortgage With One Year’s Accounts
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Mortgage With One Year’s Accounts Frequently Asked Questions
Michael Webb explains the mortgage process with one year’s accounts.
Can I get a mortgage with one year’s accounts?
That’s something we are frequently asked by those who are self-employed or have started a limited company. The answer in theory is yes, but obviously a lot more goes into a mortgage application than the assessment of the income.
As long as everything else fits, then some lenders will consider applicants with only one year’s trading history, one year’s tax returns or one year’s accounts.
How do I prove my income with one year’s accounts?
It will be different from individual to individual depending on the setup. For example, if you’re self-employed, you actually need a full tax return for April to April, unless you’ve had an extremely strong nine months.
What they’re going to look at is the first full year, so if you started trading in December and your tax year ends in April, by the time you’ve got to December the following year you’ve only got a tax return with three or four months on it. You need to get through a whole April to April cycle.
If you’re a limited company, your corporation tax return and your company accounts are returned up to nine months after the tax year ends. But if you can do your accounts more quickly, we could find a lender that will run off the retained profit from one year’s accounts.
But that means we’re starting to look for multiple bits of criteria. The market really does contract if you only have one year’s accounts. Whether that’s available can drop in and out.
There are other people that might only have one year’s accounts, such as contractors – be they IT contractors or CIS workers. In reality, if you have a contract and particularly if it falls under IR35, you actually don’t even need one year’s records. You just need the contract to have been renewed once and have a good period of time remaining on it. That again does vary by lender, but it could be three or six months, for example.
So there are certain possibilities where you’d be classed as self-employed, but lenders would actually treat you as employed.
How much can I borrow with one year’s accounts?
Very commonly a lender will take an average of the last two years to create your income figure, or use the lowest of the last two years if your profit is declining. But this isn’t possible with just one year’s accounts. So it’s just about feeding in the usable income into the lender’s affordability calculators, while factoring in any other costs such as dependents, loans, credit card debt or car finance.
That will establish how much can be borrowed from the lenders. There’s no one size fits all answer there. We can’t really say you can get X times your income, because it doesn’t really work like that any more. The number that comes out will be different from applicant to applicant.
Can I remortgage with one year’s accounts?
Any remortgage process would involve an assessment of whether it is best to stay with your current lender and renegotiate another product. In that case, no income requirements are needed. We need to demonstrate affordability but there’s typically no underwriting for a product transfer or a product switch with your own lender.
Brokers do those on an advised basis, rather than you just phoning the bank and doing it yourself. I would always recommend that before doing a product transfer you speak to a mortgage broker, because we would assess the whole market to see what options are out there for you.
In this situation we would look at the lenders who will allow one year’s accounts and explore whether you can borrow enough to move your mortgage to that lender. So it’s the same process as for any remortgage, but we would be limited to the lenders who will consider one year’s accounts.
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Can I get a Help to Buy mortgage with one year’s accounts?
Help to Buy has now ended. There were lenders under the scheme that allowed one year’s accounts, but Help to Buy is now closed. There are other schemes about to help First Time Buyers, though.
A First Time Buyer can certainly get a mortgage with one year’s accounts if they’ve got their deposit and a decent credit profile. One of the things to bear in mind is that much of the time people are doing a joint mortgage application. It could be that one person has PAYE income and one person only has one year’s accounts. That’s not a problem, either.
What if I have bad credit, can I still get a mortgage with one year’s accounts?
Yes, potentially – as always it comes down to that lender’s decision. But when we’re looking at someone with one year’s account plus bad credit, that does remove a lot of lenders from the marketplace.
There’ll be lenders that won’t do bad credit and there’ll be lenders that won’t do one year’s accounts. When you need both of these, we’re probably only looking at a couple of lenders that would consider it.
Are there many mortgage providers that lend with one year’s accounts?
There’s more than one, but there’s not a hundred. We have to understand that having one year’s accounts is an element of criteria. It’s a risk point for a lender and they will make judgments on that on an ongoing basis.
What you may find is there could be an influx of lenders at one point that will accept it, and at other times they withdraw from that. They might have done an analysis and found that clients with one year’s accounts are more likely to go into arrears for example, so they withdraw from that market.
How do I apply for a mortgage with one year’s accounts?
The first thing we need to do is make sure your accounts have been returned and your tax return has been done and is with HMRC. If we’re able to actually download those accounts as submitted, we’ve got a good understanding of what’s going on.
You’re going to need anywhere between three months and 12 months’ bank statements to show your income – and possibly the lender will ask your accountant to make a projection for Year Two to make sure that Year One is not an anomaly. They’re going to want to see that the business is solvent.
All these things are in addition to what you would do for a standard mortgage application. The key steps are to see a mortgage broker for initial advice and to get an Agreement in Principle. Then you would move on to the full mortgage application and your broker would manage that through to a formal mortgage offer.
Is there anything else we need to know when looking for a mortgage with one year’s accounts?
Using a mortgage broker is going to shortcut your work. There are hundreds of lenders in the marketplace, but only a few will accept one year’s accounts. A mortgage broker will help you avoid all that legwork. Whilst there are solutions on the high street, there aren’t many. You could end up going to lots of lenders and being rejected before you even start.
Your home may be repossessed if you do not keep up with your mortgage repayments.