How Many Years Accounts Do You Need for a Mortgage?

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How Many Years Accounts Do You Need for a Mortgage?
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No matter the year or season, the reason that someone may wish to purchase a property is constantly changing.

Some people may have experienced a significant change in their personal circumstances, meaning that a new place to live is needed to reflect that. Meanwhile, some younger buyers may simply want to move out from their parents.

Whatever your reason for wanting to buy a property, it is common for potential buyers to rush too quickly into things. For business owners and people who are self-employed, mortgage lenders will ask that you have a certain number of accounts behind you, to prove that you are a worthwhile recipient of their loan.

So, how many years accounts do you need to secure a mortgage in the UK? And why is this system in place? Our blog below answers both of these questions for readers in the UK.

How Many Years Accounts Do You Need for a Mortgage?

The vast majority of high street mortgage lenders in the UK ask for three years’ accounts, certified by an accountant, before they will accept a mortgage application.

There are instances of specialist lenders accepting one- or two-years’ accounts to grant a mortgage in special circumstances. In this case, the lender will ask for much more information, and may also enquire about details such as:

  • Projects
  • Assets
  • Information about your employment before you started the business

For example, if you have worked in the same industry before starting your own business, this will be taken into account. Furthermore, if you are able to put down a significant deposit on the property, the lender will look upon you more favourably.

It is rare to find a lender who grants you a mortgage with less than three years’ accounts, however it is not impossible. However, you are unlikely to get this from a well-recognised high street lender.

What is a specialist mortgage lender?

A specialist mortgage lender can be valuable if you want to get a mortgage, but have less than three years’ accounts.

Specialist mortgage lenders provide loans to people in unique circumstances. This will typically include people who do not meet the requirements for a ‘high street’ mortgage lender, but who are nevertheless in a reasonable financial position. For example, some mortgage lenders specialise in self-employed business owners with less than 3 years accounts.

When you apply for a mortgage from a specialist lender, there will often be other parts of the deal which are not as favourable as you would get from a high street lender after 3 years. For example, specialist lenders often have higher interest rates.

Why do most mortgage lenders ask for 3 years accounts?

Asking for three years’ accounts is a mortgage lender’s way of protecting themselves. If your business has been trading for three years, and shows a reasonable financial performance, then it reassures them that the business will not cease to exist in the next few months. In other words: they want to ensure that you are a reliable recipient of their loan, and can be trusted to pay it back.

It is common for new businesses to fail within the first three years of trading. Therefore, if a company has survived for this long, it is considered a safer bet – which is why mortgage lenders ask for three years accounts.

Should I wait for three years’ accounts before applying for a mortgage?

It is no coincidence that most mortgage lenders demand three years’ accounts – as it usually means that you are in a more secure financial position. Therefore, it is recommended that you do not rush into purchasing a property, and make sure that you have a higher deposit and monthly wage first.

If you are in no rush to purchase a property, then waiting for three years’ accounts will typically get you more favourable terms on the mortgage (for example, your interest rate won’t be as high as it would’ve been after two years). It is generally considered a good idea to not rush into a big financial commitment, such as a house.

If you are unsure whether now is the right time to buy a property, you should always seek independent advice from a property expert.

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