The question of ‘How long do I need to have been self-employed for?’ is one we hear most frequently.
Mortgage lending is a cautious activity and the last thing lenders want is to repossess your home. As such they look for a track record in running your own business and the best way to do this is to specify a minimum amount of time that you must have traded for.
The majority of lenders in the UK will require you to have been running your own business for a minimum of two years, some will require three. However, don’t worry if you have not been trading for two years as there are still options available to you.
Certain lenders will still provide a mortgage offer for those who can only provide one set of finalised figures. So, great news if business has been good in the first year and you need move house or raise some extra capital!
Whilst on the subject, it is important to address the subject of why lenders require finalised figures and why they simply can’t work off projections or management accounts? The reason is simple. Lenders base mortgage affordability against taxable income. It may be that your management accounts show some great sales figures year to date but an as yet unaccounted for large expense in month 12 will reduce the profit. If a mortgage company were to lend against the management information and, at a later date, have to repossess the property due to arrears it could be argued that they did not lend responsibly in the first place. By using the finalised accounts and tax returns, lenders are able to demonstrate with confidence that the amount they have advanced was affordable.
So, in summary the minimum period for self-employment is 1 year. However you have more options with 2 years under your belt. If you don’t yet have a full year of finalised accounts then it is a waiting game, but hopefully not for too long…
For more information on mortgages for the self-employed why not get in touch and we’ll send you a copy of our handy guide.
Some other blogs that may be of use to you:
- What is ‘mortgage affordability’?
- 5 things that could slow down your mortgage application
- Could the new mortgage guarantee scheme be your ticket to getting on the property ladder?
Happy mortgage hunting!