Self-Employed Mortgage 2 Years Accounts

Do mortgage lenders accept self-employed applicants with only two years of accounts?

Yes they do – two years is actually the perfect time. Some lenders do ask for three, but that’s very rare. If you have two years’ records, we can work with that – no problem.

Is two years of self-employed income enough for most lenders? Will I need two full trading years, or is a part-year acceptable?

It would be two full trading years. It does depend on when you start your year, whether that’s the first of January or another month. You may not have a full year straight away, but generally it’s two full years that we need.

Are there mortgage lenders who will accept less than two years of accounts?

Yes. Sometimes it could be beneficial to go with a lender that just accepts one year – especially if you’ve had a particularly profitable one. Most lenders take an average of the last two years, and a few take the latest figures if they’re better. That’s something we can take into consideration.

There are lenders who will take one year’s accounts, but they’re not likely to be high street banks.

Are specialist lenders a better option with only two years of accounts? Are there lenders tailored to self-employed applicants?

Not necessarily – if you’ve got two years’ accounts, we should be able to go with the high street. It just depends on what the affordability looks like – your income and net profits. Most lenders take net profits as shown on your SA302s, tax year overviews or company accounts.

If you held an employed role and then become self-employed in the same industry and job, some lenders see that as a natural progression. They may take a stance on using one year’s accounts there.

Again, that’s lenders who tend to do manual underwriting and can take a view on it, and won’t just rely on a computer decision.

What if my second year shows lower profits than the first? Should my income be increasing or is fluctuating income acceptable?

It depends on why it’s fluctuating. Ideally, everybody’s in business to make a profit, with natural progression and steady growth. If your figures have gone down, that’s fine, but most lenders would use the most recent year’s income. They wouldn’t do an average of the last two years.

That might not be desirable for you in terms of affordability. However, if profits are lower because you’ve bought an asset, such as new vehicles for your company, that’s an investment.

If we can show over the last five or 10 years that there’s been a steady increase in your profits, and this year dipped because of spending, sometimes that can be dismissed. In that case, we can instead use the two previous years’ figures.

Again, this involves getting a lender to take a common sense look at the figures. We might also need a little information from your accountant about it. Everything is looked at on an individual basis, and some lenders are more flexible than others.

Can I include other income sources?

Yes – I’ve got some clients who are both self-employed and employed, with two income streams. You may also have rental income or investment income, and we can use those.

Also, if you’re buying with a partner who is employed or also has different streams of income, we can add all those in together. That can certainly increase affordability for you.

Will I be assessed on net profit, gross income or dividends?

Most lenders will take salary and dividends if you run a limited company. That will be shown on your SA302s and tax year overviews.

However, some lenders will use net profit plus your salary – and a very small number will actually take gross income and salary. If we need to look at bumping up affordability, that could be an approach to look at.

Obviously, if you’re a sole trader, your net profits will be shown on your SA302s and that’s what we would use for the last two years.

Do I need an accountant to prepare or certify my accounts?

Not necessarily. Some people do their own which is absolutely fine, as long as you’ve got all the documents that we need for the application.

Once you submit your accounts, you will get an SA302, also known as a tax computation or tax calculation. You also get a tax year overview, which shows how much tax you’ve paid.

If you’re a limited company, you’ll have the company accounts, as well. Some lenders do ask for an accountant’s certificate, so if you do have one, they can complete that for you. It can be anything from maybe a two or four page document. Sometimes accountants charge for that, which is a cost to factor in.

What documents do I need to apply for a mortgage with two years of self-employed accounts? Are personal and business bank statements required?

There are generally more documents for the self-employed. Yes, normally three months’ personal bank statements would be needed. Business bank statements aren’t always necessary, but it’s likely we’d need three months’ worth. Good banking conduct for both accounts is beneficial.

Then, as I mentioned, the SA302s and tax year overviews will be needed for the last two years – plus the accounts if you’re a limited company.

How much deposit do I need if I only have two years of accounts?

Having two years’ accounts doesn’t dictate how much deposit you’d need. If you have a 5% deposit, we can work with that. But ideally, the bigger the deposit, the better. From 10% and 15% you can get better rates.

A deposit can come as a gift from friends or family, not just necessarily your own personal savings.

Can I still get a high Loan to Value mortgage?

That’s something we can look at. It’s all down to affordability, so if you have enough income from being self-employed, that’s not a problem. We do need to make sure that you have a good credit score and meet the lender’s other criteria.

If you’ve had any missed payments or anything in the past, it could mean we need a bigger deposit to compensate for that. Everybody is looked at on an individual basis.

Will my credit score impact my eligibility more because I’m self-employed?

Not necessarily. It’s important to pay everything on time, as you don’t want any missed payments. When you’re self-employed, you may have more commitments to pay out each month. Just make sure you have good banking conduct and you’re paying everything on time.

Check all your accounts have the same addresses on them. Your business address might be different from your home address, or everything might be at your home address. Make sure everything is correct.

I’m always happy to run through what people need to get ready for a mortgage, but sometimes people come to me having found a property and want to roll straight away. It will depend on what stage you’re at.

If you’re just thinking about this, we can run through everything and look at credit scores, etc. But being self-employed won’t affect credit scoring.

Is it better to go through a mortgage broker if I’m self-employed?

We can search all the deals for you, so it’s good to come to us – it could be beneficial to look at a wide range of lenders. Different affordability rules mean that some lenders offer larger mortgages than others.

We do this all the time and can hold your hand through the whole process and guide you in the right direction. We work with so many people who are self-employed in different scenarios, and we know which lenders are likely to be more beneficial for you.

It’s nice to get self-employed clients onto the property ladder. They can be nervous about whether they’re going to have enough for a mortgage. Most of the time it works out for them, so there’s no need to worry.

Key Takeaways:

• Most mortgage lenders accept self-employed applicants with two full years of trading accounts, though some lenders may consider only one year.
• Your income assessment will generally be based on net profits as shown on your SA302s, tax year overviews, or company accounts; for limited companies, salary and dividends are typically used.
• Fluctuating income is generally acceptable, and if a recent dip in profits is due to an investment, some lenders who perform manual underwriting may take a common-sense view and use figures from previous, more profitable years.
• While a 5% deposit is often workable, having a larger deposit, such as 10% or 15%, will give you access to better mortgage rates.
• It is beneficial to use a mortgage broker because they can search across a wide range of lenders whose varying affordability rules may offer you a larger mortgage than others.