For self-employed people in the UK, such as sole traders, the mortgage market can seem like a maze. Traditional banks and lenders tend to apply rigid criteria that are not lenient towards the fluctuations of a self-employed income. 

However, there’s nothing to be discouraged about as there are plenty of options to secure a sole trader mortgage. All you need is some help and guidance. Let’s start with this guide where we will answer how sole traders can secure a mortgage, providing some insights and tips. 

Can You get a sole trader mortgage​?

The only time the answer to this question is “no” is if you aren’t a sole trader. We are not denying that there can be differences between employed and self-employed mortgages but thankfully, the UK mortgage market has evolved over the years and become much more diverse than a couple of decades ago. Now, there are plenty of options designed specifically for the self-employed.

As sole traders do not have a structured income, proving income stability becomes the crucial difference. Lenders can’t rely on payslips, they will assess your business’s overall financial health to understand your eligibility to be a borrower. So you have to present a powerful financial profile.

Your application has to include accounts and tax documents as proof of a sustainable income. Even if all these requirements sound intimidating, it’s as simple as needing access to mortgage lenders who recognise the needs of sole traders and business owners. 

How Long Must You Be a Sole Trader Before You Can Apply?

When it comes to applying for a mortgage, waiting to make your application stronger is almost always a wise decision. Lenders prefer traders who have been in the business for at least two years as that garners enough accounts to provide them with a clear financial history. However, if you aren’t willing to wait, that’s alright as well because some lenders consider one year of accounts if all other financial factors are strong.

One point to be noted is that with one year of accounts, you are likely to be subjected to more vigorous checking, and may be offered unfavourable terms like higher interest rates. If possible, it’s best to wait for a couple of years to get the best shot at an ideal mortgage deal. 

How to Boost Your Sole Trader Mortgage Chances

What you do before or during your application will decide a lot of critical things, that your financial profile will heavily depend on. Here are some approaches to consider or take so you can increase your chances of approval. 

Keep accurate and updated accounts

Ideally, you will present about two to three years’ worth of accounts. When it comes to employed and self-employed mortgages, the difference is that a sole trader does not have a consistent income structure. Therefore, showing accurate accounts is extremely crucial. 

Get them prepared by a certified accountant. For those willing to apply with one year of accounts, make sure you have additional documentation to back your case properly. Every detail should be carefully recorded.

Maintain your credit score

Credit scores are key components of any mortgage application. It can especially play a big role for those who are self-employed. Your credit score determines whether you have been responsible for debts and payments.

If your credit is low, try to build it. We know this may sound counterintuitive but using credit can actually rebuild your score! You can take a secured or a low-limit credit card. It’s important to be responsible about it. If your score is more than average, maintain it by making necessary payments on time. A little maintenance on your credit history can take you a long way. 

Find lenders that cater to sole traders

Not all mortgage lenders will understand the situation of sole traders and thus, may make an unfair assessment. Traditional lenders are likely to impose strict requirements. Some lenders are more open and comfortable working with self-employed applicants. It’s essential to pick such lenders as it can make your mortgage journey smoother.

How to find such lenders? This is where enlisting the help of a mortgage broker is worth it. They can provide tailored advice and be the matchmaker, connecting you to the best lenders. 

Choose the right property

Believe it or not, the type of property you’re looking to buy can impact your mortgage eligibility. Some properties are considered higher risk and lenders are understandably put off by that. A standard home in a nice residential area is considered more straightforward than a property that may require extra work such as renovations or is located in a less desirable area. 

If you want to purchase a property with high-risk factors such as remote locations, flooding, or structural issues, be prepared to face some plausible difficulties. Selecting a well-maintained, standard property, even if small, will make the lender’s decision easier. 

Increase your deposit

While high deposits are not exactly mandatory, it is one of the simplest ways to improve your chances and make yourself a tough competitor. Employed applicants usually give 5-10% for a deposit. If you can afford to give 15-20% instead, it reduces the risk significantly for the lender. They will also be willing to give you better terms and conditions.

If you are a young professional, you can opt for gifted deposits if a family member is willing to help you out. However, if that is not an option, the deposit is something you should be able to afford on your own. Avoid taking any loans to fulfill deposit requirements because it would increase debt and complicate mortgage approval.

Important Details to Know for a Sole Trader Mortgage

The paperwork

Include all these documents along with your application:

• Accounts certified by a professional accountant
• SA303 forms (tax returns) from HM Revenue and Customs
• Personal and business bank statements 
• Proof of identity (passport, citizenship, driving license)
• Proof of address (recent utility bills)

The assessment

Here’s what lenders will assess to calculate sole trader mortgage Eligibility:

• Overall income based on your average earnings over a period of time, supported by accounts and SA302 forms.
• Affordability to ensure your income comfortably covers mortgage payments and other expenses.
• Credit score to understand your financial history which can lead to improving approval chances and terms.
• Business stability based on consistent earnings, long-term viability, and future contracts.

The borrowing capacity

Sole trader mortgage borrowing is typically 4–5 times your average annual income, depending on your credit score, deposit size, and finances. For example, with an income of £45,000, you could borrow up to £225,000. For a more accurate estimation, use a sole trader mortgage calculator. 

Speak to a Broker for Expert Advice

With the mortgage market being vast and tricky, it’s only natural to seek help. Talking to a mortgage broker can ease your sole trader journey. Using their expertise, they will simplify the process for you overall.

They will maximise your borrowing potential and give you access to sole trader-friendly lenders. They understand the different types of mortgages out there in the maze and can help you find the best deal, saving you time and effort. 

Conclusion

The difference between employed and self-employed mortgages​ starts to look much smaller when you know what to do. If you are a successful sole trader, do not let any obstacles come your way toward homeownership. 

Our team at UK Mortgage Finder is full of experts who are familiar with special circumstances. We understand your needs and give our full dedication to cater to them. Contact us today and secure the keys to your future home!