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Mortgage as a Sole Trader image

Mortgage as a Sole Trader

Anthony McQuilliam explains how the mortgage process works if you’re a sole trader.

Podcast approved by The Openwork Partnership on 27/03/2025

Can I get a mortgage if I’m a sole trader?

You can indeed. A lot of people seem to believe that it’s difficult to get a self-employed mortgage agreed. But as a sole trader, as long as you’re prepared and you’re speaking to the right person, there should be no problems in getting yourself a mortgage.

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

Again, people seem to think you need to have been self-employed for three years to get a mortgage as a sole trader. Maybe that was how things used to be, but it’s completely changed now.

If you’ve got two years’ proof of working as a sole trader and you can show your tax calculations and tax year overviews for those years, you’ll have access to the vast majority of lenders.

If you’ve recently started your business, lenders allow you to get a mortgage after 12 months. As long as you’ve got one year’s worth of accounts, that should be absolutely fine.

What documents do I need to prove my income?

To prove your income as a sole trader, you’d need your tax calculations and tax year overviews. These are forms that your accountant will sort out for you.

They declare how much profit you’ve earned through your business within the last year. If you’ve got two years’ proof of that, lenders tend to average the two years’ accounts.

That’s how they calculate how much to lend you.

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

In both cases, the lenders want to see your ID. It’s still a case of getting an Agreement in Principle upfront before you start looking at properties. The real difference between applying as a limited company director and as a sole trader is around the documentation.

For example, a sole trader applying for a mortgage just needs to prove their personal income via tax calculations and tax year overviews. A limited company director has the opportunity to use their share of net profit within the business.

For example, if you’re a 50% shareholder of a business and earn £100,000 profit, you’d be able to use £50,000 share of that for the affordability calculations. That’s the main difference.

Rather than just assessing your personal income, a company director may be able to use business profits for affordability. Lenders will also want to see more details on how the business is run and whether it is profitable. It’s not just based on you as a person.

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

How much you can borrow as a sole trader depends on a few factors. If you have zero financial commitments, no credit cards, loans or car finance, you’d be able to borrow more than someone who earns the same income but has substantial debt.

How much you can borrow also depends on the lender you’re looking at. As a general rule, they work out an average of your last two years’ profits, but some lenders just use your most recent year. They would then multiply that by 4.5 to five times to calculate how much to lend you – if you had no debts.

Some lenders will give you a mortgage as a sole trader with a 5% deposit. You don’t need a massive deposit to get a mortgage being self-employed. There are still 5% lenders out there.

Speak to an expert

Our highly experienced Advisers are ready to help you with either buying or remortgaging a home, protecting your property and lifestyle along with saving you time and effort, ensuring you have a competitive deal right for you.

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

If you’ve got bad credit and you’re applying for a mortgage as a sole trader, it’s still doable. It’s the same as if you were employed, and you may need a bigger deposit.

You’re seen as high risk if you’ve got bad credit, because there’s historical proof that you didn’t pay back some of your debts and commitments. To compensate for that risk, they need you to put down a slightly bigger deposit.

Depending on how bad your credit is, putting down a 15% deposit opens up the vast majority of bad credit lenders. However, some lenders will let you put down a lower deposit – even as little as 3% – and still apply for the mortgage. Again, it depends on how bad the credit is.

That’s where you should speak to a mortgage professional. We’ll see how bad the credit is and which lenders we would need to go to for you [information correct at the time of recording in March 2025]

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

With Buy to Let mortgages, as long as you have proof of earnings, some lenders won’t be too concerned about your personal income. They just want to see that the property you’re purchasing is self-sustaining.

As long as the rental income covers the mortgage payment and their rental calculations, most lenders will be absolutely fine for you to apply for a mortgage as a sole trader.

Some lenders will need you to have a minimum income, in which case earning £25,000 per year or more opens up the vast majority of Buy to Let lenders.

How does the remortgaging process work for a sole trader?

The process is exactly the same as if you were employed. Again, it’s just a case of doing that preparation. You need your most recent year’s tax calculations and tax year overviews.

Something that could potentially have an impact is if your business was doing very well two years ago that allowed you to borrow a certain amount on the mortgage. Looking at your remortgage now, if your business has dropped off or you’ve started to scale the business up and your profitability has suffered, you might not be able to remortgage with other lenders, or borrow additional funds.

It would just mean having to stay with the same lender, taking a product transfer. They will still lend to you – even if your drop in income means the affordability is too low for a mortgage with a new lender.

How do I apply for a mortgage as a sole trader? How can a mortgage broker help?

It’s a case of having that conversation nice and early on in the process if you’re self-employed. Preparation really is key when you’re applying for a self-employed mortgage.

Have that conversation with your mortgage advisor, make sure that your credit’s lined up perfectly, get your deposit together and find out how much you can borrow. Talking to a specialist in self-employed mortgages will put you a step ahead.

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

There are three crucial elements in getting a mortgage. The first is the deposit. At the moment in March 2025 there are lenders where, depending on the criteria, you could put down no deposit or just 3%. Having 5% to 10% will open up a lot more doors, though.

The second thing is proof of income. If you’ve got your tax calculations and tax year overviews, and you’re in a position where your business is earning a profit, that makes it easier for you.

Last but not least is your credit. Make sure you have no missed payments and everything’s up to date. If you’ve got all three of those boxes ticked, it greatly increases the chances of your mortgage being accepted.

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

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

Approved by The Openwork Partnership on 27/03/2025

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