If you’re self-employed and thinking of buying a property, you’ve probably already heard talk of needing two or three years of accounts before you can get a mortgage. Understanding what this really means, and how it can affect your chances of becoming a homeowner, can help to give you peace of mind and ensure you buy the property for you.
Getting a mortgage when you’re self-employed
Becoming self-employed has a number of important advantages. From being able to set your own hours to benefiting directly from your own hard work, being your own boss can be fantastic. However, as Smart Asset says:
“Taking your career into your own hands can be extremely rewarding, financially and emotionally. But it can also be a stumbling block when you try to buy a home.”
Although most lenders offer mortgages to homebuyers who work for themselves, they often ask the self-employed to meet much stricter criteria than PAYE applicants. This is because banks see lending to the self-employed as a riskier prospect than lending to those who have more traditional incomes. This can make getting a mortgage when you work for yourself more of a challenge. Luckily, if you know where to look, getting a good deal should still be possible.
What are accounts and why do you need them?
When you’re self-employed you have to fill out a tax return at the end of the financial year. This shows how much you’ve earned, how much you’ve spent and how much tax you owe to HMRC. Mortgage lenders use this information to calculate the size of loan you can afford to pay back. As the incomes of self-employed workers can vary dramatically from year to year, especially when a business is new, banks generally want to see at least two to three years of books to make sure your income is secure.
For Limited Company self employed, the lender is likely to ask for the tax calculations and trading accounts for the business to ensure that the size of dividends taken is not being drawn from a previous year profit, as this will not be sustainable to do every year.
Can you still get a self-employed mortgage with one year of accounts?
If you’ve only been self-employed for a short period of time and just have one years of accounts, getting a mortgage can be a real challenge. There are some circumstances in which lenders may consider offering you a mortgage. However, this is rare and you may find you have to wait another year or two before you can buy your dream home.
If you’re self-employed, or are thinking about becoming self-employed, getting expert advice could help you to secure a mortgage for your dream home. Get in touch with a member of our team, or take a look around our site to find out more.
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Written by: Andrew Page