Mortgages for sole traders and partnerships

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Can I get a mortgage as a sole trader?

Yes, you can get a mortgage as a sole trader!

Being self-employed can make getting a mortgage more difficult than if you were full-time employed. That’s because lenders can find self-employed incomes difficult to understand if they don’t specialise in the area. But specialist mortgage lenders and brokers who regularly make mortgages possible for self-employed people can find mortgages for sole traders, people in business partnerships and limited company directors. 

The important factor to understand is lenders will want to see proof of your income so they can offer you a mortgage. They need to know you have the funds to be able to afford to make the repayments on your mortgage.

Specialist lenders have different lending criteria. Some have flexible criteria for different kinds of self-employed people, so one lender might specialise in limited company directors, and another might have more flexible criteria for sole traders. That’s why working with a specialist self-employment mortgage broker is important. Our Mortgage Experts live and breathe the market - they'll know which lenders to approach for your unique situation.

Got questions?

How long should you be a sole trader before you can get a mortgage?

Lenders like to see a history of income when you’re a sole trader. They need this so they can determine your affordability for the mortgage you’re applying for. As with most self-employed people, most lenders will want to see at least three years' worth of accounts to show how much you earn as a sole trader. But there are specialist lenders who’ll consider your application with less. Some will consider you with 12 months of trading history, and others will consider you if you have literally just started out as a sole trader.

What proof of income do I need as a sole trader?

As a sole trader, lenders need to see evidence of your income. Specifically, they’ll want to know your net profit, they get this usually by seeing your SA302 which is an income report you’ll fill in for HMRC as part of your self-assessment. In some cases they’ll also accept a tax calculation from your accountant too. Both of these income reports will usually need to be supported by a tax year overview from HMRC. 

Proof of income for sole traders can be: 

  • Tax returns

  • SA302

  • Bank statements

  • A reference from a qualified accountant 

Once lenders have your proof of income, they’ll match this with their lending criteria to ensure that they’re both lending responsibly and that you will be able to afford to make monthly repayments.

A lot of lenders will want to see three year’s worth of accounts, but specialist lenders will accept you with less as long as you have evidence you can show your earnings and projections.

Read more about getting a mortgage with less than three years’ accounts.

How does bad credit affect my chances of getting a mortgage if I’m a sole trader?

If you’ve got a bad credit rating, it can be more difficult to get approved for a mortgage. But it’s not impossible. Working with a specialist broker who understands your situation is the best way forward. Our Mortgage Experts can work out what the impact will be on your application by getting to know your unique situation.

You can read more about getting a mortgage with bad credit here.

What’s the difference between a company director mortgage and a sole trader mortgage?

A company director, unlike a sole trader or a person who is self-employed in a partnership, will likely pay themselves a base salary and top this up with dividends, for the purpose of tax planning. 

A sole trader or partnership won’t be able to draw down dividends. That means that lenders will often view these two types of self-employed people differently, based upon the complexities of their income and earnings. 

There are mortgages available for both company directors and sole traders, and working with the right broker will help you to find the right lender and deal based on your specific financial situation.

Read more in our Guide: How to Get a Mortgage as a Limited Company Director.

How will a lender determine my affordability as a sole trader?

Lenders calculate your affordability by looking at your income. Most lenders do this by looking at your last three year’s trading history. But specialist lenders will consider you with less than three year’s accounts. 

Lenders each have different lending criteria which will affect how much they’re willing to lend to you as a sole trader, so the calculations will vary, but on average lenders will be willing to give you up to 4.5x your income amount. Some lenders will give you more than that, some will offer less depending on your situation and what their criteria is. 

Generally, the amount they’ll be willing to loan a sole trader on a mortgage will be calculated like this:

The max loan amount = (net profit, or, total income received) x 4.5

What should I consider as a sole trader when it comes to income tax?

If you’re a sole trader, you’ll probably have an accountant. In some cases, your accountant will probably try to legally minimise your tax liability for you. Accountants often do this for clients to reduce your taxable income. But it’s important to remember that sometimes reducing your taxable income can be a negative thing when you’re applying for a mortgage. That’s because it can make it look like your income is lower than it is, and the lender won’t believe you can afford your mortgage repayments.

Why use Haysto?

We get how it feels when you’re refused a mortgage. We’ve been there. Haysto exists because the mortgage world is broken. If you don’t have a shiny credit rating, you’re self-employed with a complex income, or just don’t fit the mould, the odds are completely stacked against you. We just don’t think that’s fair.

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Unlike others, we only work on bad credit, self-employed and complex mortgages. That’s all we do. And we’re up for a challenge.

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We only get paid when your mortgage is approved.

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