Mortgage as a Sole Trader

Mortgage as a Sole Trader

Cathy explains mortgages for sole traders.

Can I get a mortgage if I’m a sole trader? How does it work?

Yes, of course, you certainly could. Running your own business can be challenging, but obtaining a mortgage shouldn’t be one of those challenges.

Sole traders’ income could be irregular or more complex than that of those who are employed, and so lenders will ask for evidence of income via various paperwork.

Using a mortgage broker can smooth the process so you could concentrate on your business. Let us do the hard work for you.

How long do I need to be a sole trader before I can get a mortgage?

Most lenders want to see two years’ self-employed income. If you’ve been trading for less than two years, one year of self-employment could be considered. However, you must have one year’s accounts.

It’s recommended to apply for a mortgage once you have two years of accounts, as you will have a much broader choice of lenders.

What documents do I need to prove my income?

They like to see two years of finalised accounts or two years’ tax calculations and the corresponding tax year overviews.

If you’ve been trading for less than two years, a minimum of one year’s accounts could be considered. You will need the latest three months bank statements for the account that’s used for business purposes. Finally, you will need a form of ID, which could be a passport or driving licence.

How does the mortgage process differ between a sole trader and a limited company?

So lenders tend to use the whole profit from a sole trader when doing affordability calculations. For limited company directors, lenders have a different approach – they will view the money taken out of the company as your base salary.

The approach to dividends or cash left as retained profits within the company vary greatly from one lender to the next. So for limited company directors, the amount you could borrow can vary quite significantly between different lenders.

How much can I borrow as a sole trader? Do I need to put down a bigger deposit?

There’s no requirement for sole traders to put down a larger deposit. Lenders will generally want a 5% deposit. Your income will be assessed over two years and they will usually use an average over that time as the basis to calculate your borrowing. But if the most recent year is lower, they’ll use that.

What if I have bad credit? Can I still get a mortgage as a sole trader?

Yes, certainly. There are lenders that offer mortgages for impaired credit applicants. A larger deposit will usually be required.

Can I get a Buy to Let mortgage as a sole trader?

Yes. Buy to Let mortgages are assessed on the rental income of the property. But the lender will often assess the applicant’s income in the same way as with residential mortgages. They may want to see two years of trading figures, as we discussed before.

How does the remortgaging process work as someone who is a sole trader?

There are no differences, really. For a remortgage, the borrower’s income is assessed the same way as a new application.

How do I apply for a mortgage as a sole trader?

Firstly, make sure all your paperwork is in order and then speak to a broker – we will make the process as easy as possible for you.

What else do we need to know about applying for a mortgage as a sole trader?

Mortgage brokers will know the market and which lenders are likely to accept a sole trader application – so they could help you find the right deal.

Finding these deals on your own would take a lot of research, and involve repeating your circumstances many times to different lenders. It’s always better to use an experienced mortgage broker to smooth the process and make it as easy as possible.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.