Self-Employed Mortgages With 2 Years’ Accounts

Most lenders will give you a self-employed mortgage with two years of accounts, although the longer your accounts date back, the better your chances.

This is because lenders want reassurance you can pay back the mortgage and meet your monthly repayments. Seeing your earnings over a longer period allows them to better assess how risky you are to lend to.

We’ll explain how you can still get a mortgage if you’re self-employed with less than 2 years of accounts, what additional information mortgage lenders will need, and why using the services of a mortgage broker can boost your chances of success.

Can you get a mortgage if you’ve been self-employed for two years or less?

Yes, it’s possible. There’s no specific amount of time you have to have been self-employed before you can apply for a mortgage. Some lenders will consider you for a mortgage if you have one year of accounts. The caveat, however, is that many lenders require documentation showing three years’ worth of (healthy) accounts and supporting paperwork.

That’s because they want to ensure you’ll be able to pay back the loan, and seeing your earnings over a longer period of time helps determine how likely that is.

A good number of (mainly specialist) lenders do, however, accept fewer years of paperwork. A broker specialising in the self-employed mortgage market can tell you which lenders they are so you can avoid rejection and subsequent black marks on your credit history.

How to get a mortgage with less than two years of accounts

First, you should seek the advice of a specialist broker with experience arranging mortgages for people in a similar situation. If you make an enquiry with us, our broker-matching service will be able to match you up with the right advisor. 

Your mortgage broker will then be able to help with the following: 

• Gathering sufficient proof of income: The proof of income you will need includes copies of your business’ certified accounts and the SA302s for the last two years. In addition, an income projection statement for the next trading period (ideally prepared by a suitably qualified accountant). 
• Download and optimise your credit reports: As you only have 2 years of trading history, it’s vital that no other obstacles exist that could hinder your application. Ensuring you have a clear credit history will help your cause, so it’s worth checking your credit records in advance. 
• Finding the right mortgage lenders: Your mortgage broker will be able to quickly identify those lenders who look more favourably on applications of this nature. Saving you time and avoiding any unnecessary rejections.
• Preparing your application: Your broker will already know the documentary evidence required and can help you gather all of this information to ensure your application has the best chance of approval.

How to prepare the supporting evidence you’ll need

Getting a mortgage when you’re self-employed requires thorough preparation of your financial records.

Here are some detailed steps to ensure you are well-prepared:

1. Organize Your Tax Returns: Ensure you have filed at least the last two years of tax returns. These should include all schedules and forms that detail your income and expenses.
2. Compile Profit and Loss Statements: Create up-to-date profit and loss statements for your business. These should be detailed, showing monthly and yearly profits, and reviewed by an accountant for accuracy.
3. Maintain Consistent Records: Keep a consistent record of all your business transactions, including invoices, receipts, and bank statements. This helps demonstrate a stable income flow to potential lenders.
4. Detail Business Expenses: Document all business expenses, separating them from personal expenses. This helps lenders understand your net income after business costs.
5. Prepare an Income Projection: Sometimes, lenders may request future income projections based on past performance and reasonable growth expectations, along with justifications for assumptions.
6. Letter from Accountant: Obtain a letter from your accountant to confirm your income and financial stability. This will add an extra layer of credibility to your application.

How much can you borrow based on two years’ accounts?

This will largely depend on what the lender believes you can afford. To calculate that, if you’re a sole trader or working in a partnership, they’ll look at the ‘total income received’ section of the two SA302s you’ve provided or calculate your share of the net profit in your two years of accounts.

If you’re operating as a limited company director, they’ll use the director’s salary and add on any dividends received. Some may also include any net profits.

Whatever the total income amount is, most lenders will then multiply that by 4 to 4.5 times to get an approximate idea of what you could afford to borrow. Certain lenders may be willing to loan 5 times or even 6 times your earnings.

Try our mortgage calculator to get a rough idea of your maximum borrowing. To start, select ‘2’ from the dropdown menu for ‘Years trading’.

Additional eligibility criteria

Suppose you only have two years’ accounts or less to support your mortgage application. In that case, it’s important to ensure you meet the rest of the general lending criteria as closely as possible.

In addition to the number of years of accounts, your application will be assessed based on the following factors…

• Your credit history: To temper the limited trading history, the ideal applicant would have a good credit history to demonstrate their reliability. However, some lenders specialise in mortgages with bad credit for the self-employed, while a broker might be able to advise on how to remedy bad credit.
• Your loan-to-value ratio (LTV): A bigger deposit size and lower LTV could also counter any perceived risk that comes with being self-employed and having so few years to demonstrate steady earnings. A 75% LTV would be good to aim for, but some lenders offer 90% and even 95% mortgages.
• Your age: As long as you’re not nearing retirement, most lenders won’t query age. But should that time of life be approaching or if the mortgage term runs into it, the pool of lenders willing to loan you may be smaller.
• Any debt you may have: Having debt doesn’t equate to an automatic rejection but can affect the number of lenders willing to accept your application. It will depend on the size and type of debt.
• The type of property you’re purchasing:  If you’re looking at a standard property, then there shouldn’t be an issue, but if it’s a property of non-standard construction, think a house made of concrete or one with a thatched roof, you would need to approach a specialist lender.

Which lenders will consider your application?

While many high-street lenders have the three years’ worth of accounts stipulation in place, some, such as Barclays, HSBC, and Natwest, only require accounts for two complete tax years.

However, in this scenario, there’s likely to be more choice, competitive rates, and flexibility among specialist self-employment mortgage providers. Kensington Mortgages only requires applicants to have a year’s worth of trading history and is open to applicants with bad credit, while Aldermore Bank also only requires a year’s worth of paperwork and will loan up to 85% LTV.

More specialised lenders can typically be accessed much quicker via an intermediary, which is why working with a broker can be beneficial.

The eligibility criteria for mortgage lenders can change at any time. To obtain up-to-date information and bespoke advice about which lenders you should consider, make an enquiry, and we’ll introduce you to a mortgage broker with experience in this area.

Will the interest rates be higher?

Not necessarily. Interest rates don’t alter based on your employment status, but what can change is the number of lenders willing to consider your application.

If you can prove that you’re a reliable borrower and the other areas of your application are solid, there’s no reason why your mortgage rate would be prohibitive. The table below illustrates the rates currently available.

Please note that the above rates were accurate at the time of writing, but are always subject to change. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

Government schemes available

Being self-employed for two years or less doesn’t stop you from accessing some government schemes for mortgage applicants.

You could explore:

• Shared Ownership: Through this scheme, you’d purchase a portion of a property but own it jointly with a housing developer or local council. It’s a good solution if you can’t afford the whole property but can afford between 10% and 75%. You’d then pay your mortgage and a small amount in rent for the remaining portion to the other owner with the plan to purchase a bigger share over time. While you need a 5% deposit, if you are self-employed, you can qualify as long as you earn less than £80,000 (or £90,000 if you are based in London).
• Help to Build equity loan: If you’d like to build your own home, the government can help. In parallel to your mortgage, you’d apply for a government loan that would cover the costs of between 5% and 20% of the land or the estimated cost of construction of the home. This comes with a £1 a year fee and interest after five years.

With each of these schemes, the difficulty will lie in finding a lender that facilitates the scheme, offers mortgages to the self-employed, and accepts less than three years of self-employment paperwork. This can be tricky but not impossible with expert help.

Speak to a broker specialising in self-employment

Getting a mortgage when you’re self-employed can be challenging enough. Doing so without three years’ tax returns can amount to an even bigger challenge and a higher likelihood of rejection. That doesn’t have to be the case, though.

Working with a mortgage broker can ensure you apply only to a lender likely to say yes and submit an application that meets all other requirements. From the first-timer’s consultation to completion, they’ll be on hand to ensure you get the best mortgage possible.

Call 0330 818 7026 or fill out our enquiry form to be matched with a specialist today.