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Applying for a Sole Trader mortgage can seem quite daunting and feel like there’s lots of hoops to jump through.
As a Sole Trader, your time is money, so who wants to spend copious amounts of time researching mortgage affordability and the differences in mortgage products.
Not to mention that different lenders have varying criteria when it comes to Sole Trader mortgages.
As with any Self-Employed Mortgage, preparation is key, so working with an experienced mortgage broker that knows Sole Trader mortgage criteria well, early into the buying or remortgaging process, can prove to be very useful.
At Rosehill we’d carry out a full assessment of your documents and aim to have you fully prepped for your property search or remortgage to allow for a smoother process, but in the meantime we’ve created a simple guide on Sole Trader mortgages below.
Overview of topics being discussed:
The simple answer is yes.
It might not be as straightforward as a mortgage application for an employed person, however this doesn’t mean that securing a mortgage as a sole trader needs to be a painful process.
You’ll find that different lenders will have different eligibility criteria for self-employed applicants, whether that be Sole Traders, Partnerships, Limited Company Directors or Contractors.
This can range from the type of income to be assessed to the number of years’ trading history you have.
A mortgage broker with good knowledge of mortgage criteria for Sole Traders will help you save time in your search. Just be sure that you choose a broker who you like and trust and is also authorised & regulated by the Financial Conduct Authority (FCA).
There’s a few documents that you’ll want to gather to show proof of income for your mortgage application.
You can find a more extensive list of documents to gather here, but if we’re specifically looking at income documents, you’ll need:
If you contact us we have guides that we can provide to gather these documents, or these can also be obtained through your accountant.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
When it comes to income assessment, mortgage lender criteria varies for Sole Traders, making it difficult to get a good idea of maximum lending.
Lenders will use your net profit from self-employment figures, as shown on your Tax Calculations (SA302s). This document is essentially the equivalent to an employed persons’ P60.
Some lenders may also look at other sources of income too, such as Buy to Let income.
Working out how much you can borrow for a mortgage when you’re a Sole Trader is not a very straightforward task.
As different lenders have different criteria, such as whether they’d average your income over the last 2-3 years or use the latest year’s income.
This means that the maximum lending could vary quite substantially.
To give you a very simple example (not accounting for any other factors) of how much lending can vary let’s take the following example:
Latest year
Net profit from self-employment: £50,000.
Previous year
Net profit from self-employment: £35,000.
Lender A who will consider an average of your net profits over the last two years, may lend a maximum of £191,250.
On the other hand, Lender B, who will consider lending based on the latest year’s net profits, may lend a maximum of £225,000+.
For this reason, we’d recommend speaking with a broker who is well-versed in self-employed mortgages to get a better idea based on your specific circumstances.
We receive enquiries from clients who thought they needed a higher deposit due to being self-employed – this isn’t necessarily the case.
It is possible to secure a Sole Trader mortgage with as low as a 5% deposit, although a smaller selection of mortgage lenders will be available when compared to a deposit of 10% or more.
In addition, your credit history can have an impact on how much you can borrow, so it’s worth checking your credit report.
There are schemes such as the Mortgage Guarantee Scheme through the Government which may also be available.
Generally speaking, up to a certain level, lower interest rates become available at each 5% increment in your deposit (5%, 10%, 15% and so on).
Many lenders will require at least 2-3 years’ trading history before considering a mortgage application from a Sole Trader.
This is so that the mortgage lender can get comfortable with the health & profitability of a business over a longer period of time.
That being said, there are some lenders who can consider one year’s accounts.
If you’re a Contractor with a daily rate, including those subcontracting through the Construction Industry Scheme (CIS), you may not need a full 12 months’ trading.
It can be difficult to secure the mortgage you need if your business has seen negative impacts of COVID-19.
However, mortgage lenders understand that COVID-19 will have had an impact on many businesses, so some lenders have specific criteria on this topic, or even have specific products to suit these circumstances.
We focus on building long-lasting relationships with clients.
We therefore charge a reduced fee for our existing client remortgages.
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As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home or property. The Financial Conduct Authority does not regulate commercial buy to lets and some forms of commercial mortgages. You may have to pay an early repayment charge to your existing lender if you re-mortgage
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Rose Hill Financial Services Ltd is authorised and regulated by the Financial Conduct Authority. You can find us on the Financial Services Register https://register.fca.org.uk/ under reference 912303. Registered office address: 1 Bell Street, 2nd Floor, London, England, NW1 5BY. Registered in England and Wales. Company registration no: 11997519.
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