Mortgages for Sole Traders

Everything you need to know

Mortgages for sole traders by Gavin Burrows
Director of Fifty Nine Financial

Any self-employed mortgage can be tricky if you are not experienced in applying for that type of mortgage. Whether it’s a sole trader or limited company directors. We still receive so many enquiries from people like this who have struggled to get a mortgage previously. The reason is simple. No two lenders are the same in the way they assess a mortgage application. Most importantly, every mortgage provider has their own policy when it comes to income requirements and verification. If you don’t know where to turn, this could be an uphill struggle. Thankfully, our expert mortgage brokers help sole traders like you all the time. 

Using a specialist mortgage advisor

You need a mortgage broker that is very knowledgeable when it comes to self-employed mortgages. In fact, ideally you want a mortgage advisor that specialises in mortgages for the self-employed. That way you can be sure that you will get the best mortgage deal for you and your circumstances.

There are many things that can have a massive effect when applying for a mortgage as a self-employed person. Rest assured, our expert team have the knowledge and experience to get you the best result possible. Below you will find out everything you need to know about mortgages for self-employed sole traders. 

Click the links below to jump to each section or continue reading 

Can I get a mortgage if I am a Sole Trader?

Yes of course. Most mortgage providers products are available for employed or self-employed people. If you want to apply for a mortgage as a company director, the way your income is evidenced will be the main difference. Therefore, it is often helpful to use a mortgage broker who understands the self-employed mortgage market. Someone who knows the specialist lenders and how best to get a mortgage approved for a self-employed sole trader. 

How many years accounts will I need to get a mortgage?

It’s possible to get a mortgage once you have been trading for a full 12 months and have 1 years accounts. There are some exceptions to this for professional contractors. A contract for work must be in place and the day rate can sometimes be used. 

However, most mortgage lenders want to see at least 2 years trading history for a self-employed mortgage application.  Although it is possible to get a mortgage with only 1 years accounts, having 2 or more will open up many more options. This is important when it comes to finding the best deal.  

Do sole traders need a perfect credit score to get a mortgage?

Being a self-employed sole trader does not mean you need perfect credit to get a mortgage. however, for anyone with poor credit, the options are restricted. It is possible to get a mortgage if you have missed payments, defaults, CCJs, DMP etc, even past bankruptcies. But the more serious the adverse credit issue is, the harder it can be to find a mortgage. The higher the CCJ or default balances were and the timescales of when they occurred will all make a difference. 

But the short answer is that you do not need to have perfect credit to get a mortgage. Even if you’re a sole trader. 

How is sole trader income calculated for a mortgage?

When applying for a mortgage as a sole trader, your income is based on your net profit. This is your income after expenses are deducted. 

Most lender will want to see 2 years accounts. They will typically take an average of the last 2 years figures. However, there are lenders that will base the affordability on the most recent years self-employed income. This is another reason why it can be so important to use a specialist mortgage advisor. 

Can I remortgage and borrow extra money to buy a business?

Yes, it is possible to borrow extra money to use towards buying a business. Although this is a particularly niche area. If you have enough equity in your property, you can raise capital for pretty almost any legal reason, including remortgaging for business purpose. This can be done with both residential mortgages and buy to let mortgages. However, for business purpose, it would most likely need to be done with a specialist mortgage provider. The good news is, a specialist mortgage advisor will know exactly where to turn if you have any requirements like this. 

What documents do I need to prove my self-employed income as a sole trader?

When applying for a mortgage as a sole trader, you will need to provide the following documents to evidence income: 

  • SA302 from HMRC or Accountants tax calculations 
  • Tax year overview from HMRC portal

Typically, your accountant should be able to provide these. 

Some lenders will request an accountants reference to support the application. This can be quite useful if there has been an increase in turnover/profit in recent years as the accountant can provide a supporting note explaining the increase. Where possible they can also include a projection. 

How much can a sole trader borrow on a mortgage?

A modest baseline in terms of income multiples is 4.5x your income. However, it is certainly possible to get 5x or even slightly higher. 

However, there are many things that can effect the amount you could potentially borrow on a mortgage. If you have any of the following it will have an impact on the maximum mortgage you could borrow:

  • Children who are financially dependant
  • Loans
  • Credit cards with balances
  • Car finance or lease agreements
  • Store cards
  • Maintenance payments to ex partners
  • Any adult who is financially dependant 

Can I get a mortgage based on my most recent years figures?

Yes. Although most mortgage lenders do require at least 2 years accounts, there are options to get a mortgage with only 1 years accounts. 

A mortgage broker who specialises in mortgages for self-employed will be able to help find you the right mortgage for this situation, 

Do I need a bigger deposit if I'm a self-employed sole trader?

The simple answer is no. You do not need a bigger deposit for a mortgage just by being a self-employed sole trader. It will ultimately depend on how complex the scenario is. Which is the same for any mortgage application. Adverse credit mortgages will typically require a higher deposit. Also, if you are wanting any additional borrowing, then a higher deposit may also be required. But simply by being a company director, this does not warrant any more deposit than any other mortgage. 

At the time of writing this (Dec 2020), most mortgage lenders require 15% deposit. This was a reaction to COVID-19 pandemic. However, there are now a handful of lenders that can consider a mortgage application with a 10% deposit. Of course, there are certain criteria to qualify for that currently. 

Is the mortgage process simple for sole traders?

Again, the overall complexity of the mortgage case will ultimately influence the overall process. Ensuring that your application is placed with the right mortgage lender that can consider your case is crucial. If you apply to a lender that is not favourable to circumstances, then you may experience a rough ride. This is again a prime example of why it is advantageous to use an expert broker that will take care of everything. When a sole trader applies for a mortgage, there are different requirement when it comes to evidencing income. However, so long as you can provide the evidence that should not be a problem. Thankfully, your mortgage advisor will then be able to find you the best mortgage for you. 

I've had a previous mortgage application declined. Can I still get a mortgage?

If you have previously had a mortgage application declined, don’t panic. There can be many reasons why a mortgage application gets declined. The important thing is understanding why. That way, we may be able to find the best route forward to finding a lender that will accept your mortgage application. 

If you have had a mortgage declined previously. the first step is to speak to an expert mortgage advisor. Explain why you were declined. Then they will be able to advise on the next steps and hopefully find you the right mortgage deal for you. 

At times like this, you need a broker that fully understands the market fully. Someone that knows which lenders can consider your application. That way you are minimising any impact on your credit rating that could be caused by applying to multiple mortgage lenders at the same time. 

How long will it take to get a mortgage offer if I'm a sole trader?

The time scales for completing any mortgage can vary dramatically. It can depend on the purpose of the mortgage. Is it a purchase mortgage or a remortgage? If it is a remortgage, is any additional borrowing required? Also, the credit rating of the applicants. And simply how busy the mortgage lenders are at that time. 

At the time of writing this (December 2020) We have seen a crazy period of time in the housing market. However, many lenders are still able to get to a mortgage offer within a couple of days. Sometimes even the same day of the application!

If it is a more complex mortgage, where the applicants have defaults, CCJs, or other poor credit, this can often make the underwriting process a little longer. 

Making sure that you have all of your documents ready will certainly help to get things moving quickly. Having a good mortgage advisor handling it all for you should make the process run much smoother. 

Speak to an specialist mortgage advisor

If you are a sole trader in need of a mortgage, get in touch to find out how we can help you. Our specialist mortgage team be able to have a chat with you and give you the right advice. 

As we are whole of market this means we are not tied to any mortgage provider and have access to mortgage lenders all over the UK. We can answer any questions you may have and look forward to helping secure you the best new mortgage deal for you. 

Or call
01332 985528

We will be happy to have a chat about your situation today.

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