The number of self-employed people in the UK has been growing steadily over the years.
Currently, there are around 4.31 million self-employed people in the country. An increasing number of people are preferring the flexibility and greater control that comes with being self-employed.
However, if you’re a self-employed person looking to get a mortgage, things can be a bit complicated.
This is because lenders require information that can prove you are capable of repaying the mortgage, such as details of income. But providing such information can be difficult, especially if you have been self-employed for two years or less.
That said, it is still possible to get a self-employed mortgage with 2 years accounts, and this guide will help you know how.
Table of Contents
- Getting A Self-Employed Mortgage With 2 Years Accounts
- Lenders Offering Self-Employed Mortgages With Two Years’ Accounts
- Applying For A Self-Employed Mortgage With Two Years’ Accounts
- Documentation And Accountants
- How Much Can You Borrow?
Getting A Self-Employed Mortgage With 2 Years Accounts
When you apply for a mortgage as a self-employed person, a lot of lenders require three years of account details.
This can be a challenge if your business is relatively new or has recently changed its structure, such as becoming a limited company from a sole trader.
In such cases, you need to find a lender who is willing to offer a mortgage with just two years of accounts.
A lot of high street lenders do offer this and will average the income or take the latest year if it is lower.
Lenders Offering Self-Employed Mortgages With Two Years’ Accounts
A lot of lenders are limited in the risk they can accept, but the situation is different with certain lenders. They are willing to provide mortgages even if you have just 2 years of accounts.
However, even in such cases, it is important to search for the right lender and ensure you meet all their requirements.
Approaching an unsuitable lender means that the chances of your mortgage application being declined will be extremely high.
Additionally, keep in mind that while certain lenders provide a way for self-employed people to get a mortgage with two years accounts, getting your application approved still may not be very easy.
Another thing to consider is that the nature and type of self-employment can vary significantly from one applicant to another.
So, a lender may be more willing to provide a mortgage to borrowers in specific types of self-employment.
That’s why it is a good idea to take the help of a specialist mortgage broker who can help find the most suitable lender.
Applying For A Self-Employed Mortgage With Two Years’ Accounts
Preparing your mortgage application properly as a self-employed person is crucial for it to be approved by the mortgage provider.
One of the reasons for this is that underwriters may need detailed information regarding your financial history before approving the loan. If the documents are not in order, the application may be declined.
By hiring a mortgage broker, you can make this process easier, as an experienced broker will try to procure maximum information before the application reaches the underwriters.
Brokers also have knowledge regarding the entire market and can help you find the most suitable product with the most reasonable rates.
Documentation And Accountants
Hiring an accountant to prepare your documents for the loan application is not always necessary, but it can be beneficial.
When a qualified accountant verifies your accounts, lenders find it easier to obtain the information they are looking for. This adds credibility to the application as well potentially.
As for the documents required when applying for such a mortgage, your SA302 documents are of utmost importance. These can be obtained by filing a request with the HMRC office or downloading them from their website.
The SA302 documents provide detailed information regarding your income for a specific year. So, when providing income details for two years, two SA302 forms will be required.
Opposing this, if you are a director of a LTD company the lender may vet LTD company accounts rather than SA302s & Tax Year Overviews.
How Much Can You Borrow?
The amount you can borrow under a self-employed mortgage with two years’ accounts will depend on the lender.
Lenders generally consider the total income received by calculating it using the accounts for the two years. This information is also mentioned in the SA302 forms.
On the other hand, for a self-employed person working as a director of a limited company, the dividends and salary will be taken into account. Some lenders may even include net profits for this purpose.
The amount calculated will be multiplied four to six times to determine how much you can borrow.
Then of course personal circumstances such as credit commitments or dependants will affect this borrowing amount.
1. What is the Loan-To-Value (LTV) ratio for self-employed mortgages?
There is no set LTV ratio for mortgages that are provided on the basis of two years’ accounts. Some lenders may allow as high as 90% or even 95% LTV.
2. Are interest rates higher in the case of such mortgages?
Interest rates are usually the same for both regularly employed and self-employed people. Hiring a broker can help you find lenders that have the most suitable rates.
3. How can you improve the chances of getting your mortgage application approved?
When applying for a self-employed mortgage with just two years of accounts, make sure to have a good employment track record with stable or increasing income. Focus on improving your credit score, and if possible, put down a larger deposit to increase the chances of getting your application approved.
Getting a mortgage as a self-employed person with just two years of accounts isn’t easy, but it is definitely possible.
The biggest challenge lies in finding a suitable lender willing to accept your application in such circumstances, which often requires a lot of effort.
Other than that, the documents required by the lender for assessing the application should be prepared properly.
Ensuring regularity of income without extended gaps while keeping your credit score high can go a long way in making sure your application gets approved.
Meeting these requirements can be difficult, which is why it is a good idea to consult a mortgage expert when applying for such a mortgage.
They can help you know how to complete these steps and even guide you through the application process.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
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