If you’re self-employed you might wonder about your chances of getting a mortgage.
It’s a common myth that you need a long history of business success to get a mortgage, but that’s not always the case. This guide is here to clear up the confusion and show you how you can get a mortgage with two years accounts.
First things first, there’s no special ‘self-employed mortgage’ out there.
When you hear this term, it’s just a regular mortgage, but with a little more understanding of your unique income situation. While many lenders like to see three years of your business accounts, don’t worry – there are plenty who are happy to consider your application with just two years under your belt.
This guide is your friendly companion on this journey. Whether you’re a sole trader, running your own business, or freelancing, we’ll walk you through what you need to know about proving your income, finding the right lender, and the importance of having a good mortgage broker by your side.
Understanding self-employed mortgages
As a self-employed individual, you will have access to the same mortgage deals and rates as an employed person in the same situation.
In fact, a ‘self-employed mortgage‘ doesn’t really exist.
It is merely a term used to describe a mortgage arrangement that is more understanding of how self-employment works.
There are definitely differences in how certain lenders view self-employment, with many seeing it pose a higher risk to lending when compared to an employed person.
The challenge is to cut through these risk-adverse banks and get to the lenders that do understand what working for yourself involves and are happy to lend.
Self-employed mortgages with 2 years accounts
If you’ve only been self-employed for two years and now need a mortgage. it will pay to get expert help from an independent mortgage broker.
Most lenders will prefer to see three years of self-employed trading accounts as it gives them a better idea of your income position.
But not all lenders take this view.
The good news is that there are plenty of lenders who are happy to approve a mortgage based on two years trading accounts.
Remember that lenders want to see a full two years of accounts and HMRC SA302 tax paperwork, as proof of your income.
Self-employed mortgage with 1 years trading
If you have not yet completed your second year then your mortgage will be assessed on just one years trading accounts.
This is still possible, but it is likely to limit the number of lenders.
Read more about getting a mortgage with one years of accounts
Who can apply?
This type of mortgage is designed with self-employed people in mind.
This would be sole traders, contractors, freelancers and business owners who typically do not have a fixed income.
Lenders who accept self-employed applicants will assess your mortgage based on your SA302 figures and may also ask your accountant for a projection.
If you are a company director owning less than 20% in shares, you would normally be treated as a paid employee.
Ownership of 20% or more will require a self-employed assessment but this also means you can bring in any retained company profits to boost your borrowing power.
Specialist lenders (& brokers)
Having just 2 years worth of accounts will exclude some potential lenders. These will be risk-adverse banks who want to see 3 years of accounts.
Specialist lenders, on the other hand, fully understand the nuances of self-employment and are accepting of the additional risks.
A specialist mortgage broker will be very experienced in these situations and can give access to the many specialist lenders who only work with intermediaries.
Mortgage eligibility
Being eligible for a mortgage and then making a successful application means ‘ticking’ lots of boxes. Here’s a brief guide:
Time self-employed
You will need to have finalised accounts covering the two years you have been self-employed, plus corresponding SA302s.
Having your accountant draw up a projection for year 3 won’t hurt either.
Deposit
The absolute minimum deposit would be 5% of the purchase price/value.
If you can get to 10% or above then you will have access to a wider range of lenders and cheaper rates.
Credit history
It’s always a good idea to get a copy of your credit report before applying for a mortgage.
Leave yourself some time to check everything’s OK and to fix any errors. If you have experienced bad credit then solutions are still possible.
Property
The lender needs to approve the property as well as the borrower.
If the property is of an unusual or non-standard construction, the you’re likely to need a specialist property lender.
Age
The minimum age to get a mortgage will be 18-21 depending on the lender.
For older borrowers, there’s also a maximum age on expiry of the mortgage term. This tends to be around 80-90.
Applying For A Mortgage
Our guide will take you through the process, explain all of the key stages and help you to better understand what’s required when you apply for a mortgage.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
Proving your income
You will need to provide official evidence of your declared income over the last 2 years, this is normally via personal or business accounts and HMRC SA302 forms.
Accounts
If you are running your own business, partnership or limited company all lenders will ask to see your official accounts. These will have been drawn up by an accountant and show earnings, expenses and profit.
SA302
An SA302 is the official HMRC year end Tax Calculation that is based on your submitted self assessment information (your tax return).
If you are self-employed or a company director then you most likely need to submit a tax return every year that includes all of your income. The SA302 provides a convenient summary that is accepted by lenders as proof of your earnings.
How much can you borrow?
How much you can borrow will depend on 2 things: your provable earnings and your regular expenditure.
Lender’s will work on your personal gross income, before tax. This figure will come from your SA302.
They then multiply this figure by 4 to 4.5 times, maybe 5 times.
Then they look at your affordability, by checking what you currently spend your earnings on.
Why not try our mortgage calculator to see how much you could borrow.
Getting mortgage ready
Getting your finances in order before applying for a mortgage is one of the best things you can do. Whether you are buying your first home or thinking of moving somewhere new, there are a number of ways that you can improve your situation and speed up the mortgage process.
Getting mortgage ready means that you will be better organised and in a much stronger position when applying for a mortgage.
Being mortgage ready is more than just deciding to buy a house and get a mortgage. It’s about sorting your finances and getting organised so that you stand the best possible chance of being approved.
Being short on time, and without some of the required documents, makes the whole process stressful for everyone involved.
Wherever possible, start the process 3-6 months before you want to actually apply for a mortgage.
By planning ahead you will have enough time to understand what a lender will need to see and organise all of the necessary paperwork. When you start this process it might reveal things that need fixing or improving.
Think of it as getting match fit. You need to put the effort into training and getting prepared.
Having everything in order and in the right place will mean that:
- There’s less rushing around trying to find documents
- You will be in a stronger position than before
- You could have more deals to choose from
- It will be easier to apply for a mortgage
- It will be easier for a lender to assess your application
- You stand a better chance of getting what you want
Learn more: How to get mortgage ready
How a broker can help
Searching the mortgage market can be confusing at the best of times.
But for anyone that only has one or two years of accounts it can seem impossible.
Working with an experienced mortgage broker can help to ensure you only approach lenders that are likely to say yes. This reduces the chances of a mortgage rejection.
Whole of market mortgage brokers will have access to over 100 different lenders, from the well known high street banks, to the specialist lenders.
Their knowledge of self-employed mortgages means that they can find the one that suits you the best, regardless of the number of years accounts you have.
It’s quite common now for freelancers and those in self-employment to have several different streams of income. This is not a problem for a mortgage broker.
You won’t pay a higher rate just because of your self-employed status. However, you might have fewer lenders to choose from because of it.
If you are a construction worker and receive CIS slips or stubs then you may qualify for a CIS mortgage. This allows you to borrow using your gross income, and your slips as proof of earnings.
No. Banks do not favour one business type over another. They are interested in the level of risk you pose and whether your income is stable and predictable.
On the other hand, if your mortgage term takes you over age 65 this would be classed as borrowing into retirement. In these situations lenders will be assessing the likelihood of you working beyond this age, taking the type of work you do into consideration.
If a company director owns more than 20-25% of the business he works for then he is likely to be classed as self-employed.
It’s been a while since self-certification mortgages have been available.
The rules regarding prove of income have changed, you will now need to provide proof of your income for all mortgage applications.
There’s no quick answer to this. Some lenders will accept some levels of bad credit.
It depends on what the problem was and how long ago it happened.
Yes, but it won’t be easy.
You’ll need a good size deposit and an excellent credit history.
