Getting a Mortgage with 2 Years' Accounts

Buy to Let properties are still very popular, despite a big increase in stamp duty in 2016 and alterations to the way in which HMRC calculates profit of the investors who let properties out in order to generate income.

 With buy to let mortgages, the only difference is that they typically involve a requirement for a higher deposit compared to residential mortgages. There is still lots of interest in lending on a buy to let basis to those who wish to invest in the property market and the majority of lenders will offer buy to let mortgages with a deposit of 30 to 40%. Some will be willing to consider a buy to let mortgage with a deposit of 20 to 25%.

A few may even be willing to offer a buy to let mortgage with a smaller deposit of only 15% in certain circumstances. It is important to note that there are fewer lenders offering this type of mortgage within Scotland where higher deposits are generally required. Specialist advice is recommended in this area.

 Although it can be harder to obtain a buy to let mortgage when you are self employed, times are changing with the result being that it is much easier to achieve than it used to be. Lenders are now willing to relax their criteria and offer more flexibility when lending to self employed people, particularly in relation to Buy to Lets.

It is possible for Buy to Let mortgages to be available with:

• Only 1 years worth of accounts
• Only 2 years worth of accounts
• No income needed for landlords who are experienced.
• No minimum amount of income required

So, it could be possible for a self employed person who earns relatively little to get a buy to let mortgage. Furthermore, if this is your first time as a landlord and you have shown a profit of £1, a lender may lend to you without stringent requirements as to minimum income levels and instead ask only whether you have any income!

For experienced landlords, you may not need proof of income as many lenders will be satisfied that you have a working knowledge of this area and the risk is therefore less in their eyes. There will still be some lenders who will require significant proof of income or further information from you. Shopping around is key to finding the best way forward.

If you are a sole trader, the requirements for getting a mortgage are essentially the same as those required if you were in a partnership. The general requirement is a minimum trading period of 12 months. There are various factors influencing partnership or sole trader mortgages:

Loan to value

If the required mortgage amount is considered to be affordable, the deposit requested would most likely be identical for partnerships and sole traders as for applicants who are employed. The exception to the rule is in situations where certain lenders may agree to offer underwriting that is more flexible for people with circumstances falling outside their usual criteria for lending.

History of trading

As we have seen before, although the majority of lenders require at least 3 years' worth of trading history in order to consider lending, some lenders are willing to accept a 2 year period and a small percentage may be willing to accept partnerships and sole traders who have been up and running for only 12 months.

Multiples

The way in which calculations of sole trader incomes are made vary depending upon the lender. 3.5 times the income amount is common although some will use 4 times the annual income with certain lenders electing to lend at 5 times. In special circumstances, it may be possible to achieve a higher multiple figure through a specialist loan that is secured or through a second charge lender. This will mostly be for those looking to refinance and borrow additional sums.

You will find further information below in relation to obtaining a mortgage with bad credit but, suffice to say, there will only be a limited number of lenders who are prepared to accept a self employed borrower with bad credit if they have been trading for less than 12 months. As you can see below, there are steps that can be taken in order to mitigate a poor credit score but seeking expert advice is always recommended.

What happens if you have bad credit and wish to obtain a mortgage?

Your position will be more challenging if you are looking at getting a mortgage with 2 years accounts but you have a bad credit history. Given the turbulence in recent times, more and more people are seeking information relating to obtaining mortgages with bad credit. Mortgages catering for those with bad credit have, therefore, changed in the context of availability and eligibility criteria, particularly during the last four years.

Bad credit mortgages are not as widely available as they were previously. However, some lenders have recently decided to return to the market and are once again offering mortgages to those with less than perfect credit profiles. It is worth bearing in mind that, even if you have been previously declined for a mortgage, this does not necessarily mean that you will be declined by another lender.

Our specialist advisors have arranged mortgages for those with a history of bad credit which may encompass one or more of the following issues:

• Repossessions
• Payday loans
• Low credit scores
• Late payments
• No credit history
• Missed mortgage instalments
• Individual Voluntary Arrangements (IVAs)
• Schemes relating to debt management plans (DMPs)
• Bankruptcy
• Defaults
• County Court Judgements

One key factor here is that mortgages provided to those with a poor credit history usually directly relate to the information shown on their individual credit file. The lenders may, however, use different agencies for credit referencing. This can result in a situation where a lender using one agency such as Experian, for example, may decide not to grant you a mortgage but a different lender which uses Call Credit or Equifax, for example, may have a different view of your credit history and may be prepared to offer a mortgage.

It is therefore essential that you obtain a detailed credit report from each of these three major credit reference agencies and that you share this information with your mortgage broker to ensure that the process is correctly aligned and appropriate lenders are included and excluded from the outset.

If you don't currently have a credit card, you may wish to consider obtaining one and using it each month, making sure that you also clear the balance every month. You should not have to pay any interest by making the payment within the required period (usually 30 days) and, by doing so, you will be demonstrating that you are able to borrow and then repay in a reliable fashion.

 Even if you have adverse credit and may struggle to obtain a mainstream credit card, obtaining a card which is specifically designed for those with adverse credit, using it and repaying the full balance every month, will again show that you are capable of borrowing and living within appropriate financial boundaries. If you do this, you should see that your credit score will improve steadily over time.