Mortgages With 2 Years' Accounts

Our no-nonsense guide to getting a mortgage when you're self-employed with 2 years' completed business accounts.

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Graham Cox - Founder & Cemap Mortgage Advisor | SelfEmployedMortgageHub.com
Graham Cox
Director & CeMAP Mortgage Advisor

Many entrepreneurs and business owners come to Self Employed Mortgage Hub with two years of trading accounts but unsure how much they can borrow, or even if they can get a mortgage.

This short guide aims to answer those questions and many more, providing the clarity you need before applying for a self-employed mortgage.

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

Yes! With two years of books, the majority of mortgage lenders are happy to consider your application, subject to meeting their other eligibility criteria.  

Some lenders will want to see a 3 year trading history first, but two years is the sweet spot where most providers, including many mainstream banks and building societies, become available.

There are other, mostly niche lenders, willing to look at mortgage applications from self-employed people with just 1 year's accounts.  But with fewer deals and rates on offer, you may not necessarily get as good a deal as someone with two years' books.

The lender may also require a larger 10-25% deposit.

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.

Is it worth waiting to complete 3 years' books?

Generally, no. With 3 years of accounts in the bag, a few more lenders might open up to you. But most mainstream deals are available to self-employed applicants with just two years.

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

The maximum borrowing multiple for self-employed applicant(s) is the same as for employed people, 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 professions. For example, doctors, barristers, architects and accountants can often borrow more.

How will lenders assess my earnings if I earnt less in my second year?

Affordability is assessed in a few different ways. If your income has decreased in your latest year's trading, many lenders will use the most recent year's figures 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 company.  

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 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 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 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 return 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 company accounts and/or 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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Takes about 90 seconds. No credit check.

Getting mortgage advice and a quote

As a specialist self-employed mortgage broker, SEMH provides expert advice to company directors, partners, contractors and sole traders alike.

Not only do we have access to flexible, niche lenders, happy to consider self-employed mortgage applications, but we quickly match you to the most appropriate provider for your circumstances.

So if you're looking to save yourself time, hassle, and quite possibly money, get in touch by calling 0117 205 1695 during our office hours of 9 am-5 pm Monday to Friday. Or get started in 90 seconds here.

Graham Cox

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 find great mortgage deals.

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