How To Get A Mortgage With 2 Year's Accounts

Our comprehensive guide to getting a self-employed mortgage with two year's trading history.

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Graham Cox - Founder & Cemap Mortgage Advisor | SelfEmployedMortgageHub.com
Graham Cox
CeMAP Mortgage & CPSP Specialist Finance Advisor

In this jargon-free guide, find out how lender's assess self-employed mortgage applications from business owners with two years's accounts.

Plus you'll discover how maximum borrowing amounts are calculated, what documents you'll need, LTVs and much more.

Can I get a self-employed mortgage with 2 years' accounts?

Yes! With two years of accounts or trading history the majority of mortgage lenders will consider an application, regardless of whether you're a company director or sole trader.

A small minority of providers still require a three year trading history but two years is the sweet spot where most mainstream banks and building societies, become available.

Other, mostly specialist lenders can be willing to look at mortgage applications from self-employed people with just 1 year's accounts.  

This is the minimum trading period, unless you are a self-employed contractor who some mortgage lenders will consider with just a few months contracting experience under their belt.

But with fewer lenders available, you may not get as good a deal. And a deposit of 15-25% is typically required.

As a mortgage broker specialising in self-employed mortgages, get in touch if you'd like to get a quote or ask a question before purchasing a property.

Will I pay more for my mortgage with just 2 years' accounts?

No. With a two-year trading record, there are plenty of mainstream mortgage deals available from banks and building societies, as well as other specialist lenders.

Mortgage products for self-employed borrowers

In general, the same high street lenders, products, rates and deals are available for self-employed people as they are for employees.

One or two lenders have dedicated mortgage products for self-employed applicants, but they tend to be for those with just one year's books, with their mainstream products available for applicants with at least two years accounts.

Is it worth waiting to complete 3 years' books?

Generally, no. With three or more years of accounts in the bag, a few more lenders might open up to you. But most lenders are available to self-employed applicants with just the two.

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How much can I borrow on a self-employed mortgage?

The maximum borrowing multiple for a self-employed applicant with two years accounts is the same as for an employed one, typically 4 - 4.5 times earnings.

The same multiple usually applies, regardless of whether you are making a single or joint application.

Some providers will lend at 5 - 6 x earnings for high earners or people in certain well-paid and stable profession occupations. Doctors, barristers, architects and accountants for example, can often borrow more.

Can I get a mortgage with declining profits?

Yes, it's still possible to get a mortgage if profits have declined in the latest year. But it depends by how much.

A few lenders won't consider it at all, others will only do so if profits have declined less than twenty percent year-on-year, or even ten percent. Specialist lenders can sometimes be more flexible, depending on circumstances.

The reason for the reduction in profits is key

Falling profits understandably raise concerns for banks and building societies around the sustainability of the business.

Now, of course, there are many causes for a dip in profitability. It could be the loss of a large customer or changing market conditions.

But it could just as easily be due to investing in new business infrastructure or hiring new employees. The point is, context is key, and some lenders are willing to take a view based on the specific circumstances.

How self-employed income is assessed

For self-employed mortgages, affordability is assessed in a few different ways. If your income has decreased in your latest year's trading, most lenders will use the most recent year's accounts rather than an average of the last two.  

Other lenders use slightly more complicated formulas, dependent on your level of earnings over both years of trading.

Here are a couple of examples:

Rose and Ben are married, directors, and equal 50% shareholders in their graphic design limited company.  They're in their third year of trading and have submitted two years accounts to HMRC.

In their first year of trading, they each took £12,500 in salary and £37,500 in dividends.  However, they took the same salary but only £30,000 dividends, in year two.

In this scenario, most mortgage providers will assess their joint income using only the latest lower year's joint income of £85,000 (2 x £42,500). Giving them a maximum borrowing potential of £382,500 (4.5 x £85000), subject to deposit size, credit commitments and other eligibility criteria.

If the figures were reversed, so that the most recent year's figures were better, then an average of both years' earnings would be used. In this case, £92,500. The maximum borrowing amount would therefore rise to £416,250 (4.5 x £92,500).

There are a couple of caveats worth noting. If the latest year's figures show a large increase from the previous year, mortgage underwriters may seek more information as to the reason why.

This is because they will want to satisfy themselves the increased profitability is a result of underlying growth and sustainable going forward. Not simply a result of one-off factors.

Some high street lenders will only use the latest year's income for affordability if the increase is within a certain range. For example, 20% of the previous year's earnings.

Similarly, if your second year shows a sharp decrease in profits, the lender will want to understand the cause and reassure themselves the business has a viable future. Many lenders will use just the latest year's earnings in this scenario.

For sole traders, lenders use your net profit figures as evidenced by your accounts and SA302 tax calculation. But the same criteria apply in terms of how your income is assessed.

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How do I prove my income to a lender?

The mortgage documentation required depends on whether you trade as a limited company, sole trader, LLP or contractor.

It's likely you'll be required to provide some or all of the following documentation for each year's trading:

  • SA302 tax calculation (aka tax computation).  If you have an accountant who submits your self-assessment tax returns using online accounting software, she should provide you with the SA302s. Otherwise, you can download them from your HMRC online portal.
  • The accompanying Tax Year Overview (TYO) docs.  You can download these from the HMRC online portal.
  • Your two years certified accounts and possibly an accountant's certificate.  The latter is a simple form your accountant fills out for the lender, and which verifies your turnover, gross and net profit before tax, salary and dividend (for directors) figures.
  • Business bank statements for the latest 3 to 6 months trading.
  • It's also possible your mortgage provider will request a letter from your accountant, detailing your projected profit and loss account for the current financial year.

I have bad credit showing on my credit report. Can you help?

Yes. There's no doubt, that it's trickier to get a mortgage with bad credit when you're self-employed. But it all depends on the recency and severity of the adverse credit.

For example, many banks and building societies will only consider applicants if they have no more than one, relatively low-value, county court judgement (CCJ) or default in the past 2 years.

However, we've also access to non-mainstream lenders willing to look at mortgage applications from borrowers with poor credit. Including those with a severe adverse credit history.  

People who've been discharged from bankruptcy or settled an IVA, for example, though most providers will only consider an application 3 or 4 years after completion of the insolvency.

As you'd expect, the more years that have passed since the adverse credit event(s), the greater your chances of securing a mortgage deal.

Discover your best deal

"Brilliant from start to finish. Graham managed to find a main high street lender who offered a brilliant rate. Would highly recommend."

Tracy Boyle - Google Business Review
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Getting mortgage advice and a quote

As a specialist self-employed mortgage broker, SEMH have a deep understanding and knowledge of lending criteria and provide expert advice to company directors, partners, contractors and sole traders alike.

Gettig a self-employed mortgage approved doesn't have to be difficult or time consuming and with two years accounts and a good credit history, we can quickly match you to the most appropriate mortgage lender and deal for your circumstances.

So if you're looking to save yourself time, hassle, and quite possibly money, get in touch by calling 0117 205 0655 during our office hours of 9 am-5 pm Monday to Friday. Or get started quickly here.

Graham Cox - MLIBF CeMAP Mortgage Adviser & Director of Hub FS Ltd

About the author

Graham Cox is the founder of Self Employed Mortgage Hub, the trading name of Hub FS Limited.

Based just north of Bristol, SEMH is an independent, whole of market broker and a true specialist in self employed mortgages, helping business owners across the UK get great mortgage and protection deals.

Graham's market commentary and analyis is regularly quoted in the national press and media, including The Guardian, Telegraph, FT Adviser, and BBC Radio Bristol.