Mortgage as a Sole Trader

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Mortgage as a Sole Trader

Mortgage as a Sole Trader

Kathryn explains everything we need to know about mortgages for sole traders.

Podcast approved by The Openwork Partnership on 2/7/2024

Can I get a mortgage if I’m a sole trader? How long do I need to be a sole trader before I can get a mortgage?

You must have been trading for a minimum of 12 months to get a mortgage as a sole trader. We would need to see at least one year’s proof of earnings. If your first year isn’t a full year, we could still use that to look at affordability, but we do need 12 months’ trading and one year’s proof of earnings to be able to apply for a mortgage.

What documents do I need to prove my income?

As a sole trader most lenders are going to request your SA302s and corresponding tax year overviews for the last two years. Obviously if you’ve only been trading for a year, that’s fine, we’ll just use one year’s records.

It’s amazing how many sole traders don’t actually know what these documents are when we ask. We would request these at our initial appointment and you could either download them from HMRC or get them from your accountant, if they submit your tax returns for you.

How does the mortgage process differ between a sole trader and a limited company?

I wouldn’t say that the mortgage process differs between the two. It’s more the information that we request at the initial appointment that would differ. It’s about how you prove that income.

As a sole trader we would generally ask for the SA302s and for a limited company we would ask for the company accounts – it’s just two different types of documents. That’s what we would need really to look at your income and affordability.

How much can I borrow as a sole trader and do I need to put down a bigger deposit?

Again, this will be based on the information on your tax return or SA302s. Lenders will generally take an average of the last two years to get your income. If income has declined the latest year they will use that figure.

Some lenders won’t actually accept a decline in your income in the most recent year – but others will. If there has been an increase in the latest year, some lenders will take those figures. That’s the same obviously if you’ve only been trading for one year.

Another thing to mention is that if you’re in the first year of trading, a few more lenders will consider you if you have moved from an employed role in the same job. For example, if you were a builder on an employed basis and you’ve gone self-employed as a builder, they will be more comfortable, because you’ve got that track record in the same line of business.

In terms of the deposit, you could put down a 5% deposit. Lenders don’t penalise sole traders. If you only have a 5% deposit, that’s fine.

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What if I have bad credit? Can I still get a mortgage as a sole trader?

Sole traders aren’t treated any differently to any other sort of applicant. Lots of lenders offer mortgages to people with adverse credit.

We would look at your credit profile in our initial appointment and see sort of what information is on there and any negatives. We’d then look to find a lender that has criteria to match.

Can I get a Buy to Let mortgage as a sole trader?

Yes, you could definitely get a Buy to Let mortgage as a sole trader. Again, they don’t penalise sole traders.

Buy to Let mortgages are assessed differently from residential mortgages. Some lenders do require you to have a minimum income of £25,000 and they generally require a 25% deposit, but that isn’t across the board with Buy to Lets.

Some lenders don’t have a minimum income requirement and they may offer a 20% deposit. For a first time landlord, those are the main points we’ll be looking at.

How does the remortgaging process work for a sole trader?

There are no differences from a standard remortgage for someone who is employed. It’s just the same.

We would look into the options on the mortgage and we would discuss any changes you might want to make to the mortgage. Again, we’d be looking at the last two years SA302s for affordability purposes and we go from there.

How do I apply for a mortgage as a sole trader?

The mortgage process is the same. Initially we would request your proof of income documents which you could either download from HMRC or get from your accountant. We will then look at the affordability and the credit file.

If everything looks okay and the clients want to proceed, we would get an Agreement in Principle.

Is there anything else that I need to consider as a sole trader?

Just to say that purchasing a property as a sole trader – or remortgaging it – is slightly more complex than for an employed person. Lenders do ask for a little bit more documentation and sometimes there could be a few more hoops to jump through.

Using a broker like ourselves, that deals with sole traders and self-employed clients all the time, just means that we know what to do. We ensure that the application is speedy and stress free.

We know which lenders will accept certain scenarios and incomes. Trying to navigate the process yourself, by going directly to your own bank for example, could potentially do you a disservice. You may not be applying for the right deal that’s available to you.

We have access to a comprehensive list of providers, and some of them aren’t available on the high street. They only deal with brokers like ourselves. We will do all of the research to ensure that the deal we source is suited to each individual client. We do all the hard work for you, so it’s definitely worth using a broker.



Approved by The Openwork Partnership on 2/7/2024

Mortgage as a Sole Trader

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