Mortgage as a Sole Trader
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Mortgage as a Sole Trader
Michael Tilston explains how the mortgage process works if you are a sole trader.
Can I get a mortgage if I’m a sole trader?
Absolutely. A lot of self-employed people worry about whether they will be able to get a mortgage – but it’s no problem. If you’re a sole trader normally we would need a couple of set documents, but I’m sure we will go through that in the next few questions.
How long do I need to be a sole trader before I can get a mortgage?
It’s normally down to how many years’ accounts or books you have. Most mortgage lenders want to see two years’ proof, to see some level of consistency. It is harder to prove your income than when you’re just employed and have straightforward pay slips.
But we can do mortgages for people who have only been trading for one tax year. If you want access to more lenders, then you need at least two.
What documents do I need to prove my income?
They’ll normally ask for SA302s, which are tax calculations, otherwise known as tax computations.
These are available from the HMRC website if you do your own taxes, or your accountant can produce them for you. You will also need your tax year overviews.
Some lenders will actually just take your accounts. If you’re a sole trader and your accounts are produced by a qualified accountant, you can also use those in lieu of the other documents.
How does the mortgage process differ between a sole trader and a limited company?
I assume that’s a limited company director, which is still broadly treated as self-employed. We’ve covered this on one of our other podcasts.
It doesn’t really differ in terms of the process. The documents are actually very similar. It’s just that for a sole trader, your earnings after your expenses are your income. There’s no playing around with that. It is slightly different for a limited company director.
As a sole trader you know what your net profit is and that’s what you can use. Whereas a limited company director can decide what to draw from the business – so there are different figures we can use.
How much can I borrow as a sole trader? And do I need to put down a bigger deposit?
Broadly speaking, most lenders do offer the same income multiples for a sole trader as anyone else. Some companies limit it slightly, from a risk perspective, but it should be pretty much the same.
You don’t need to put down a bigger deposit. As for everyone else, if your credit score stacks up, there should be no issue. When things get difficult in the markets, lenders might ask for a slightly bigger deposit from the self-employed, but at the moment, it’s broadly similar across all lenders.
Speak To an Expert
Come on in and be quite forward with what you’re after – just be very honest with your mortgage broker. It’s good to make sure that we know absolutely everything about you. That way we can’t be blindsided by a lender. An open book policy is very good when coming to see your mortgage broker.
What if I have bad credit? Can I still get a mortgage as a sole trader?
You can. Again, it’s no different to anyone else. Depending on the level of bad credit, you can still get a mortgage. No problems there at all.
Can I get a Buy to Let mortgage as a sole trader?
Again, there are no differences. You can, no problem.
How does the remortgaging process work as someone who is a sole trader?
It’s straightforward, as long as the income stacks up. It is exactly the same, as long as affordability fits, the remortgage process itself is exactly the same.
How do I apply for a mortgage as a sole trader?
Come and see a lovely mortgage brokerage like ours and we will look after you. As we say to everyone, if you’re very confident with what you can do, obviously you can go to your own bank. Of course, they will never tell you if you’re getting the right deal.
It probably is easier to come to your broker – and I’d be shocked if we can’t find you a better deal than going to a bank directly. It’s the normal process in applying for a mortgage. See a broker, see a bank – whichever takes your fancy – and they’ll be able to point you in the right direction.
What else do we need to know about getting a mortgage as a sole trader?
Talk to a broker if you’ve got complexities within your books. We’ve helped people in the past with one-off kind of outgoings for their business – a large piece of machinery or similar – that we could add back in to make sure they could borrow that bit extra. We can get lenders to understand that this was an irregular off purchase that won’t be coming out of future books.
With things like that, you definitely really want to be speaking to a specialist. We know the lenders that will potentially add that back in for you.
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.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.