Mortgages for sole traders and partnerships

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.

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.

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.

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.

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

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.