Last reviewed on 15th September 2023 by Martin Alexander (Mortgage Advisor)

Securing a sole trader mortgage can be a smooth and easy process, but this isn’t always the case. We’ve spoken to many sole traders who have been unable to get a mortgage. This is because they’ve either applied to an unsuitable lender or the application wasn’t presented in the best manner.

It’s important to remember that the market is packed full of lenders. There are lenders that specialise in different mortgage types, such as bad credit, self-employed mortgages and so on.

Lenders that offer mortgages for the self-employed will lend to sole traders, directors and even limited companies. That being said, some self-employed lenders may be better suited for a sole trader mortgage than a director mortgage and vice versa.

Applying with the right lender is crucial in successfully securing a mortgage. This article will offer insight on how to find the right lender, along with other helpful tips on getting a mortgage as a sole trader.

How long have you been a sole trader?

When applying for a mortgage, a sole trader must have at least 12 months of trading history. If you have more trading history, then your assessment is usually based on the last three years.

Lenders assess trading history to calculate your affordability. This is based on the income you’ve declared. The more income you can prove, the better. If you’re a contractor registered as a sole trader, you may be able to get a mortgage with less than 12 months of trading history. Some lenders allow contractors to use day rates to calculate affordability.

There is a government mortgage scheme, known as a CIS mortgage (Construction Industry Scheme), which is aimed at contractors working in construction. In this scenario, it’s possible for contractors to secure a mortgage with just 6 months of trading history. In addition to this, lenders calculate affordability on gross income as opposed to net income. This is advantageous, as it allows applicants to maximise their loan amount.

Read more: How to get a CIS mortgage.

Documents you’ll need for a sole trader mortgage

Lenders will ask you to provide documents in relation to your work. You’ll need your latest tax returns, usually in the form of an SA302. As long as you filed your income with the HMRC via a self-assessment, this should be enough for most lenders. Some lenders will insist that your accounts have come from an accountant, but it is rare.

Providing your latest SA302 documents will allow lenders to calculate your affordability. SA302 documents can be downloaded online from the HMRC portal or can be requested by post.

Lenders generally use the net profit amounts declared each year to assess affordability. This can sometimes pose problems, as self-employed applicants typically declare less to reduce annual tax bills. If you find yourself in this position, there are lenders that can assess affordability based on gross income or total income received.

In addition to SA302 documents, lenders will request standard documents that you’ll need for any mortgage. This can include your proof of address (phone bill, council tax bill, utility bills), photo ID and bank statements. Proof of address and photo ID won’t affect your mortgage in any way unless you’re unable to provide these documents.

Bank statements can sometimes have an effect, especially if your outgoings are extremely high in comparison with your income. Lenders will also assess your outstanding credit card debt and any loans that you may have.

How do lenders assess sole trader mortgages?

Lenders make their assessments in different ways. Nonetheless, each lender will base their assessments on the below:

Loan to value

Higher deposits will always be favourable to lenders when compared to lower deposits. An applicant who needs a 75% LTV mortgage will often have more lenders to choose from when compared to an applicant going for a 90% LTV mortgage.  The LTV you’re applying for is the basis on which lenders will start their assessments.

Being a sole trader doesn’t mean that you’ll need a higher deposit than someone who is employed. The only time lenders may request a higher deposit is because of other circumstances such as poor credit or low income.

Trading history

The amount of trading history you have will make up part of your mortgage assessment. Lenders will request at least 12 months of trading history, with some lenders requesting up to 3 years.

Trading history allows lenders an insight into your self-employment and whether or not it’s sustainable. Lenders are often more confident lending to applicants who have been trading for a number of years when compared to a sole trader who has recently become self-employed.

Affordability/Income

Lenders need to be confident that you can afford to repay the mortgage you’ve applied for. This is why lenders always assess the income of borrowers. It’s the same for any mortgage application, irrespective of an applicant’s employment status. The only difference is the method lenders use to assess income for sole traders.

The income from a sole trader is calculated from an SA302. If you’ve been trading for several years, most lenders will assess your average income earned over the past 3 years.

Other lenders will only use figures from the past 2 years to calculate your average income. That being said, there are lenders that will just request your latest SA302 to assess your income.

Type of lender

As lenders assess mortgages in their own unique ways, some lenders will offer better deals than others. Some lenders will lend up to 5x your income, with other lenders 4x and some at 3x.

There are lenders that may even offer more than 5x your income. This all depends on your individual circumstances such as your deposit amount and the security that the lender has.

Sole trader mortgage rates

Being a sole trader won’t affect the rates you’re offered. The same mortgage rates are available to those who qualify, regardless of employment status. If you’re a sole trader and meet the criteria for a mortgage, you’ll be eligible for the same mortgage rates as everyone else.

There are specialist self-employed lenders designed for really tricky applications. Specialist self-employed lenders may be required due to low income, little account history or bad credit for instance. If you do require a specialist lender, then the rates offered may be higher than average.

Commercial mortgages for sole traders

Getting a commercial mortgage as a sole trader doesn’t need to be difficult, but it can be. A commercial mortgage is a loan used to either purchase a commercial property or a loan to fund the venture itself.

If you’re a sole trader and need a personal mortgage, this isn’t classified as a commercial mortgage. The information in this article relates to personal mortgages.

Learn more about commercial mortgages here.

Sole traders with adverse credit

Having poor credit doesn’t mean that you won’t be eligible for a mortgage. In fact, there are a number of lenders that specialise in adverse credit mortgages. Being a sole trader doesn’t put you at a disadvantage and you may be offered the same rates as employed applicants.

Even with 12 months of trading history, there are lenders that may still consider giving you a mortgage. You can make an enquiry with a self-employed specialist who will call you back to get a greater understanding of your financial position and mortgage requirements.

Mortgage brokers for sole traders

The advisors we work with specialise in self-employed mortgages and understand lender criteria in great depth. Although you may be able to secure a mortgage without an advisor, having an advisor ensures you’re getting the best deal that you qualify for.

If you’ve recently become a sole trader, you’ll benefit from the expertise of an advisor. An advisor can ensure your application is structured in the best way to approach the right lenders based on your circumstances.