Head of Content
Mortgage Advisor & Director
Getting a mortgage if you’re self-employed is possible, but how does it work for sole traders? Here, you will learn how lenders assess applicants with this trading style, what criteria they have to meet and how to get the best deal.
Can you get a mortgage as a sole trader?
Yes. Mortgage providers who lend to self-employed individuals don’t discriminate against sole traders and exclude them from their criteria. If you trade this way, your mortgage options will be almost identical to someone who is in a partnership or the director of a limited company.
One thing to bear in mind, though, is that some mortgage lenders are better equipped to help sole traders than others. They understand the needs and borrowing requirements of people who make their money this way, and offer bespoke mortgage deals to cater for them.
Lenders don’t advertise sole trader mortgage deals and they can be difficult to find if you don’t know where to look. The best way to track one down is to use a whole-of-market mortgage broker who specialises in self-employed applicants, like the advisors at Teito.
Our mortgage brokers have the knowledge, experience and lender contacts you need to ensure the best outcome, and often have access to exclusive deals for sole traders.
How affordability will be calculated
Most lenders base sole traders’ borrowing capacity on net profit, and request accounts covering the last 2-3 years to assess the income you will be declaring.
The maximum you can borrow is usually based on an average of your earnings over that 2-3 year period, with that figure then typically multiplied by 4.5. Some mortgage providers use a higher income multiple, up to 6 times average earnings, under the right circumstances.
If you are a sole trader with less than two years’ accounts, it is still possible to get approved for a mortgage as there are lenders who accept self-employed applicants with just 12 months’ trading history. Affordability would usually be based on a full year’s accounts, although some lenders may request a projection for the next year and take an average figure for 24 months.
Mortgage lending criteria for sole traders
Mortgage providers use the lending criteria below for sole trader applicants:
- Length of time trading: You will have more rates and deals to choose from if you have been working as a sole trader for at least 2-3 years.
- Industry track record: Having a strong track record in your industry can help improve your mortgage prospects. For example, if you are a sole trader in the property sector and were working in the same field prior to this, this experience may go in your favour.
- Deposit requirements: Deposit requirements for sole traders are no different to self-employed applicants for other trading styles. It is possible to get approved for a mortgage with 5-10% of the property’s value to put down as deposit.
- Credit history: Bad credit mortgages are available to sole traders, but whether you will be approved for one will depend on the age and severity of the credit issues you have, why they occurred, and the overall strength of your mortgage application.
You may need to find a specialist lender if you have limited trading history or bad credit. It is also recommended that you seek professional advice if you will be aged between 75 and 85 during the mortgage term, or are buying a non-standard construction property.
How to get a sole trader mortgage
Follow the steps below to find a sole trader mortgage through Teito:
Have your proof of income ready: You will need this when the time comes to apply. Lenders will expect to see your latest tax returns, usually in the form of an SA302. You should also have three months’ worth of bank statements ready to submit.
Optimise your credit files: You can download them by signing up for a free trial on Checkmyfile. After you have done this, check them to make sure they are up-to-date and report any errors or outdated information to the credit reference agencies.
Compare rates and speak to a broker: You can compare rates from across the market for free on Teito. As a sole trader, you will have access to all of the deals shown on our website, as long as you meet the rest of the lender’s requirements. Once you have selected a deal, you can speak to a broker who specialises in sole traders for bespoke advice and assistance with the application process - get started below:
Compare self-employed mortgage rates for FREE
Are the interest rates any different for sole traders?
No. Your status as a sole trader will not mean you will end up with a different interest rate to any other mortgage borrower applying for the same deal under equivalent circumstances.
The rate you end up with will depend on the amount of deposit you have (the more, the better), your credit history, and the type of mortgage you are applying for.
Which mortgage lenders are available?
No mortgage lenders will turn down your application purely on the grounds that you are a sole trader, but some have specific requirements for people who trade this way.
Below you will find examples of lenders with set criteria for sole trader mortgages:
- Bath Building Society: Will allow borrowers to declare 100% of their net profits, but will request three years’ accounts as proof of income.
- Furness Building Society: Will lend to sole traders with less than three years’ trading history if they can evidence earnings of more than £50,000 per year.
- Halifax: Lends to sole traders and will request two years’ tax returns, but may consider applicants with one year’s on a case-by-case basis if that is all they can produce.
- Kensington: Are happy to consider applications based on just one year’s accounts and will use the latest year’s net profits for the affordability assessment.
The above is merely a snapshot of a vast market for self-employed mortgage applicants. You can compare rates from these lenders and more for free on Teito - Get started here.
Can you get a mortgage if you have changed trading style?
Yes. You can get a mortgage if you have changed your trading style from sole trader to limited company or vice versa. There are a small minority of lenders who will decline outright under these circumstances, but most won’t see it as an issue, as long as certain conditions are met.
Some lenders will want a satisfactory explanation for why you changed trading style, but the majority will still be happy as long as you have been trading for at least 2-3 years across both capacities, and potentially less than this if the overall strength of your application is good.
Why choose Teito for your sole trader mortgage?
You can compare mortgage rates and deals for free on Teito and get bespoke advice about which product to choose from a broker who specialises in helping sole traders.
Here are just some of the reasons why self-employed people choose our service:
- Exclusive rates and deals are available
- Our brokers specialise in self-employed mortgages
- We are five-star rated on leading review websites
- You can secure a mortgage in principle in minutes
Ready to compare rates and deals, and take advantage of a free, no-obligation chat with a specialist mortgage broker? Get started here.
FAQs
Yes. Buy-to-let mortgages are readily available for sole traders and the only real difference when it comes to applying will be the way your income is assessed. Most lenders will be more concerned about how much rental income the property can bring in, and will expect to see a projection that confirms it will be at least 125-145% of the monthly mortgage payments.
Some lenders will look at your personal income over the last 2-3 years (or less) as well, and might only let you borrow on a buy-to-let basis if it exceeds £25,000 per year.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.