Mortgages for Sole Traders and Partnerships
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All kinds of mortgage products are available for self-employed people and products are often tailored to different trading styles. In this article, we cover mortgages for sole traders – how they work, how to get one, and why you should speak to a mortgage broker if you’re thinking of applying for one.
Can sole traders get a mortgage?
Yes! There are mortgage lenders who offer products that are tailored to the needs of sole traders and partnerships. Some of these mortgages allow people who trade this way to borrow based on remittance slips and gross income, with as little as twelve months of trading history behind them.
If you’re a sole trader or in a business partnership, finding a lender who specialises in customers in this type of employment is recommended to ensure you end up with the best deal.
A mortgage broker with the right knowledge and expertise will have a firm understanding of the needs of sole traders, and they’ll know exactly which lenders are best placed to offer them bespoke mortgages with the best possible rates.
How long do you need to be a sole trader before getting a mortgage?
The minimum is 12 months under most circumstances, although, with the help of a broker, it might be possible to find a specialist lender who will begin the preliminary stages of your application slightly earlier than this.
For a lender to establish a self-employed borrower’s annual income, a proven and well-documented history of trading is required. In times of pre-regulation (and credit crunch), it was possible for borrowers to self-certify their income and tell the lender what they earned, rather than prove affordability. This caused many to borrow far more than they could feasibly afford and was a contributing factor to the downfall of the market.
You can find a rundown of the trading history requirements for self-employed borrowers below…
- Sole-trader income requirements for a mortgage: If you’re a sole trader getting a mortgage is the same process and requires the same evidence as if you’re a partnership, with a minimum of 12 months trading.
- Partnership mortgage income requirements: 12 months as above
- Contractors: If you are a sole-trader contractor who has not yet fulfilled 12 months trading, it is possible to use your day-rate income
- CIS scheme: As with contractors, it’s possible to borrow based on your remittance slips and gross income as if you were employed, from just 6 months of trading.
Thankfully now UK regulation prevents self-cert mortgages from being offered, and all borrowers are required to produce evidence of income and affordability. But that isn’t to say you can’t find a flexible lender who specialises in sole traders.
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What documents will you need?
First and foremost, you’ll need your latest tax returns, which would usually be in the form of an SA302. This can either be downloaded from HMRC’s online portal or requested from them by post.
In addition to this paperwork, most mortgage providers will also ask you for the following…
- Proof of address
- Photo ID
- Bank statements
- Credit reports
You can read more about the documents you might need in our article on mortgage applications.
How sole trader/partnership mortgages are assessed
The eligibility criteria for a sole trader mortgage is assessed based on the factors below…
Loan to value/deposit requirements
If the loan is deemed affordable, then the amount of deposit required is almost always the same for sole traders and partnerships as it is for employed applicants. Most mortgage lenders will require at least 5%-10%. The exception here is when some lenders offer more flexible underwriting for those who have circumstances that fall outside of standard lending criteria, and these products demand a higher deposit than for other deals offered to those meeting the standard criteria.
Sole trader and partnership mortgage affordability
Mortgage lenders will work out how much you can borrow based on the following:
- Trading history
Most lenders require 3 years of trading history before they will consider the applicant’s income stable enough to lend on. Some are happy with 2 years self-employed accounts for a mortgage application, and others will accept sole-traders and partnerships who have only been running for 12 months.
- Income multiple calculation
Every lender varies in the way they calculate sole-trader incomes and also in the amount they are prepared to lend based on these incomes. Typically, 4.5x income is an average benchmark, with some lending 5x and even up to 6x income for certain borrowers. It is possible to exceed 5x income for those refinancing and looking to borrow more money, through some specialist secured loan/second charge mortgage lenders. Using the 5x income calculation, this is how it would work:
Sole trader mortgage calculation: Max loan = (Net profit or “total income received”) x 5
Partnership mortgage calculation: Max loan = (share of net profit or “total income received”) x5
Ltd company mortgage calculation: Max loan = (share of net profit or salary + dividends) x 5
Sole traders and partnership borrowers are also eligible for adverse credit mortgages, in much the same way as employed borrowers are. The only difference is when the company has only been trading for 12 months, as there are only a handful of bad credit lenders accepting self-employed borrowers without 3 years’ accounts (although they do exist).
You can use our mortgage calculator below to get a rough idea of the amount you could potentially borrow based on the profits from your own business. Select ‘sole trader’ from the dropdown menu to get started…
Self-Employed Mortgage Calculator
This calculator can work out your maximum mortgage borrowing if you're self-employed. Select your trading style from the drop-down menu, then enter your income and outgoings, and our calculator will do the rest.
You could borrow up to
Most lenders would consider letting you borrow
This is based on 4.5 times your net profit or the total income declared. To borrow more than this, you will need to speak to a mortgage broker who specialises in self-employed borrowers
This is based on 4.5 times your share of the partnership's net profit or total income declared. To borrow more than this, you will need to speak to a broker who specialises in self-employed borrowers
This is based on 4.5 times your share of the net profit/salary plus dividends, or total income declared. To borrow more than this, you will need to speak to a broker who specialises in self-employed borrowers.
This is based on 4.5 times your income. To borrow more than this, you will need to speak to a broker who specialises in self-employed borrowers.
Some lenders would consider letting you borrow
This is based on 5 times your net profit or your total income recieved. This income multiple is often unavailable to borrowers who aren't applying through a mortgage broker.
This is based on 5 times your share of the partnership's net profit or your total income recieved. This income multiple is often unavailable to borrowers who aren't applying through a mortgage broker.
This is based on 5 times your share of the net profit/salary plus dividends, or your total income recieved. This income multiple is often unavailable to borrowers who aren't applying through a mortgage broker.
This is based on 5 times your income. This income multiple is often unavailable to borrowers who aren't applying through a mortgage broker.
A minority of lenders would consider letting you borrow
This is based on 6 times your net profit or the total income declared. This income multiple is only available under specific circumstances and is usually only accessible via a broker.
This is based on 6 times your shares of the net profit or total income declared. This income multiple is only available under specific circumstances and is usually only accessible via a broker.
This is based on 6 times your share of the net profit/salary plus dividends, or total income declared. This income multiple is only available under specific circumstances and is usually only accessible via a broker.
This is based on 6 times your income. This income multiple is only available under specific circumstances and is usually only accessible via a broker.
Now that you have a rough idea of your maximum borrowing, get in touch to speak to a mortgage broker who can provide bespoke calculations and access to the best rates and deals.
Do you need a sole trader or a limited company mortgage?
If you’re a sole trader, you’ll have to apply as such and won’t be able to make an application as a limited company. However, as a company director, it is possible to apply using your personal income as declared in April to HMRC in the same way a sole trader would, before the end of your company tax year.
This would mean you’d use your self-assessment tax return to evidence your income, not your company accounts. This is because every self-employed person has their own personal tax return (Self-assessment, which produces the SA302 document lenders use), and those who are a limited company will also have company accounts and tax returns.
As limited company tax years can (and often do) end differently to personal tax years (by law of averages companies aren’t set up at various times in the year and most NOT in April), exactly when you apply for the mortgage can impact which lender you go to.
The rules, criteria, calculations, and evidence required are slightly different. See our article on mortgages for company directors for specific information on this topic.
Are sole trader mortgages classed as commercial mortgages?
No. There’s an important distinction between residential mortgage lending and commercial mortgage lending that should be made here. If you were getting a mortgage on a residential property with your sole trader earnings, this would be classed as a residential mortgage based on commercial income, not a commercial mortgage.
Commercial mortgages are strictly used to buy commercial property or fund business ventures. You can read more about them in our comprehensive article on commercial mortgages.
Sole trader mortgage rates
Mortgage rates for sole traders aren’t any different to the interest rates available to everyone else. The only reason you might get a higher interest rate is if there are any risk factors surrounding your application, such as limited trading history, a low deposit amount or bad credit – but this is true of all self-employed mortgage applicants, not just sole traders.
To give you an idea of the rates currently available take a look at our table below:
Looking for more rates and deals?
We can match you with a mortgage broker who can provide you with up-to-date bespoke rates and deals from across the entire market.
Last updated October 2023
You can boost your chances of landing the best rates available by applying for your mortgage through a broker who specialises in sole traders. They know exactly which lenders best cater for self-employed people and can make sure your application is placed with the right mortgage provider, first time.
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Sole trader mortgage lenders
Most mortgage lenders will consider applications from sole traders, but some understand their needs better than others. For example, some will only allow you to borrow based on net profit while others will factor in other income as well.
Moreover, there are mortgage lenders who won’t approve your application if you recently switched to a sole trader capacity from another trading style, while others will be fine with this. Finally, some lenders will request more accounts from you than others, with income proof requirements varying from 12 months to three years.
The take-home point here is that, as a sole trader, it’s important to find the right lender, first time, and the right lender for you is the one who’ll offer you the best rates and apply the fewest caveats based on your employment situation. To find your ideal lender, you should speak to a mortgage broker who specialises in helping self-employed customers. They will know exactly which lender is best placed to offer you the mortgage you need.
There are brokers in our network with this exact knowledge and expertise, and through our broker-matching service, we’ll introduce you to one for free.
Establishing the lender that’s best for you depends entirely on your individual circumstances, and the only way to do this is to speak to an expert who understands self-employed accounts and knows the market inside out.
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Article key takeaways
Getting a mortgage could still be possibleThe expert mortgage advisors we work with understand the intricacies of your circumstances and have helped many self employed people on their way to a hassle-free mortgage.
A broker can help you get it done rightThe right mortgage broker can help you make an informed decision about the best options. They will also have access to more deals by more lenders as they will be whole of market brokers.
Improve your mortgage eligibilityYour credit history, deposit size and proof of regular income will all help to improve your eligibility.
Find the right mortgage lenderChoosing the right mortgage lender is absolutely vital. The best way to find out whether sticking with your current lender is in your best interest is to speak to a mortgage broker.
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