Contractor mortgage 1 year accounts

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Paige Green joins us to talk all about getting a mortgage as a contractor with one year’s accounts. 

What are the requirements for getting a mortgage as a contractor with only one year’s accounts? Does a contractor’s employment status affect this?

The requirements differ between each individual, the type of work they do and how they get paid. Contractor income is one of the more complex types of income. 

Generally speaking, if you’re a day rate contractor it means you’ve got a specific rate each day and you do a set number of days a month. In that case we would treat you as a full-time contractor and take your income based on that. 

However, for people who have hourly contracts or different types of rolling contracts, are treated more as a self-employed individual – even if you’re on a PAYE salary in some cases. 

If it is a completely employed role, we will consider you employed – but we will need to see a longer track record of contracting.

What is acceptable proof of income for a contractor mortgage applicant with one year of accounts?

Generally, we need to see the contract that you’re on. If you are a day rate contractor we would also like to see some history – potentially your older contracts, covering up to a year. 

Sometimes we need to see that you’ve got experience in this industry prior to that. Perhaps you weren’t contracting, but training in this area or you were in an employed role and now you’ve gone self-employed. Where you are in your career at this moment of time can impact the evidence. 

If you are on rolling contracts or employed contracts, lenders want to see the same sort of thing. Some may even ask for your CV for the full breakdown of the experience that allows you to contract.

Do contractors with one year of accounts have access to the same mortgage products as those with longer accounts?

In theory, yes, but in reality, not quite so much. A lot of mainstream lenders advertise that they accept contractors, but depending on the type of contract you have, they may see you as self-employed. That then limits you, because a lot of high street lenders need two years’ accounts, depending on the type of contracting you’re doing. 

If you’re working in IT, for example, and you have quite a high day rate, they may take just one year’s accounts. But if you’re being considered on a year’s accounts as a self-employed individual, some lenders will do it, but they may not necessarily be at the top rates.

What steps can I take as a contractor to increase my chances of securing a mortgage with one year’s accounts?

It’s mostly about consistency. Consistency is key with any type of mortgage but especially with the self-employed and contractors. Lenders want to see that you are continually in contracted jobs. 

They don’t like to see big gaps between your contracts. They may see this as you not being able to get a contract immediately. If they’re lending you potentially hundreds of thousands of pounds, they want to know you will always have the income to support your mortgage.

How do lenders assess the affordability of a mortgage for contractors with a year’s accounts?

They generally look at you as a self-employed individual and take your net income for that year. That’s how it works for a sole trader. If you’ve got a limited company, they will look at the breakdown of your limited company. 

If you are a day rate contractor and a higher income earner, they will only look at your current contract and work out their affordability based on that.

Are self certification mortgages still available for individuals with one year’s accounts?

No, they don’t really exist any more. Banks often ask for accountant’s certificates. No self certification mortgages are available with high street lenders.

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Can I apply for a joint mortgage with a partner who has regular income, even if I’m a contractor with a year’s accounts?

Yes – there’s no issue with this. A bank is always going to prefer having another applicant involved. If they’ve got employed income, it gives a level of solidarity. As your income may be flexible, it’s less stable. 

However, if you’re seen as a self-employed individual, having one year’s accounts means you won’t have access to the same high street lenders as if you were both employed. You would be looking at the specialist lenders, as only having one year’s accounts takes you out of the mainstream criteria.

Are there any specific challenges or risks that contractors face when applying for a mortgage with one year of accounts?

It’s mostly that it’s scrutinised more closely. It’s very important for a bank to understand that your income is maintainable. They’re giving you a debt for potentially more than 20 years, so they need to know it’s going to be repaid. 

They want to see the strength of what you do, your experience in the industry and how positive your accounts are looking – especially if you’ve only got one year to demonstrate that. They want to know business is going to carry on as it is. 

Harsher rules were put in place during Covid, because a lot of self-employed people were heavily impacted. We’re only just coming out of that space, so people need to earn the bank’s trust.

It’s a lot of money to ask for when you’re buying a house – you need to show that you are suitable to borrow that money.

What happens if my one year accounts show low or fluctuating income? Can I still qualify for a mortgage?

Your accounts only show essentially one figure. Your fluctuating income will be averaged out, essentially on your one year’s accounts. However, if the income is low, that will impact how much you can borrow. 

On average you can borrow roughly 4.5 times your income. It depends on a few different factors. But if you’re not showing a lot of money as earned income, your borrowing will be reduced – even if your next year’s projections are significantly higher. They’ve not been filed yet so you can’t use those future figures. 

That can be quite a struggle when you’re just starting off as self-employed, especially if there’s a lot of start-up costs in your first year.

What impact does credit history have on the mortgage application process for contractors with one year of accounts?

Credit history is really important in any application. Generally speaking, the better the credit. the better chance your application is going to go through. 

But If you do have adverse credit, there are lenders that specialise in this. So it doesn’t mean that you can’t get a mortgage. It just means you may have a higher interest rate.

Are there any government schemes or support available to assist contractors with one year of accounts in getting a mortgage?

No, not currently. Most government schemes help First Time Buyers, more on the deposit side of things or with shared ownership. There’s nothing specifically designed for contractors with one year’s worth of accounts.

Are there any alternatives to traditional mortgages that may be more suitable for contractors with a year’s accounts?

If you’re trying to buy a house, generally a mortgage is the most suitable way of doing it. It’s the cheapest way to borrow money, especially large amounts over a long period of time. 

Depending on what you’re doing and your experience in the property industry, there are alternative ways of raising funds – but they generally require you to own existing properties or have other investment strategies in place. 

If you’re a First Time Buyer this wouldn’t really be suitable, but for potentially experienced landlords or investors, there could be more commercial options available. They are generally more expensive, but they exist.

Can I use additional sources of income such as rental income from properties or dividends when applying for a mortgage as a contractor with a year’s accounts?

Yes, you can use whatever income you’ve got. If you have rental income, lenders want to see the profit from the last two years – or one year depending on how long you’ve owned the property. 

You can also use any additional ad hoc work as long as you’re paying tax on it. Anything you’re earning can be used.

Is it possible to make overpayments or pay off a mortgage earlier as a contractor with one year of accounts?

Your mortgage terms would be the same regardless of whether you’re a contractor, you’re self-employed, employed or have a limited company. It depends on the terms of your products. 

Most give you the option of paying up to 10% extra each year without having any early repayment charges. This can fluctuate between products. 

How long does the mortgage application process take for contractors with one year of accounts?

Generally speaking, mortgage applications for contractors take a little bit longer than a standard employed application. It’s because the bank needs to understand the background of the individual and how their income is made up. 

On average, a standard application takes about two weeks. For contractors it may take longer. it depends on the bank and how fast they’re working, which can vary throughout the year.

Are there any specific mortgage lenders or financial institutions that specialise in providing mortgages to contractors with one years’ accounts?

There are a few. Banks’ criteria changes all the time. What I would say is that if you are looking at this type of mortgage, speak to a broker. We are the most up-to-date source of information on what banks will and won’t do.

We know which lenders are and aren’t offering these services. They do change so I don’t want to give you a specific name in case they suddenly change their minds. But there are definitely lenders who corner this area of the market.

Is it beneficial to work with a mortgage advisor or broker such as First Thought Financial when applying for a mortgage as a contractor with one year of accounts?

It’s always better to work with a broker – that’s slightly biased, of course, because I am one! But at the end of the day, we know what’s happening in the market. We know what rates are available, when they’re changing and what the best deals are. 

In situations where your income is a bit more niche or different, we know where to place you. It’s a lot easier for us to find out this information than for an individual without the same experience in the mortgage world. 

You could trawl through heaps of pages on Google and ask questions to lenders – but we would already know if they’re not going to work for your scenario. It’s always worth talking to a professional. 


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