Mortgages for Sole Traders: Options, Processes, and Expert Guidance
Your property may be repossessed if you do not keep up repayments on your mortgage.
Understanding Mortgage Processes for Sole Traders and Limited Companies
The mortgage process for sole traders and limited company directors is fundamentally the same; the primary difference lies in how income is verified. Sole traders typically need to provide SA302 forms, which summarise their self-employment income, while limited company directors often present company accounts to demonstrate their earnings.
These documents are crucial for assessing income and affordability, ensuring that lenders have a clear understanding of financial stability. Regardless of your employment status, lenders evaluate income trends, with some accepting higher recent income, while others may focus on the lower figures during a dip.
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.
Mortgage Options and Challenges for Sole Traders
Sole traders have access to similar mortgage options as employed individuals, including those requiring only a 5% deposit. Lenders consider income trends, typically averaging the last two years’ earnings. For those with limited trading history, moving from employment to self-employment within the same field can help establish credibility. Bad credit doesn’t automatically disqualify sole traders either; numerous lenders specialise in finding solutions for applicants with adverse credit. For Buy to Let mortgages, sole traders are assessed differently, focusing on property income potential rather than personal earnings, and typically require a 25% deposit, though some lenders accept as low as 20%.
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
The Importance of Using a Broker for Sole Trader Mortgages
Navigating the mortgage process as a sole trader can be more intricate than for salaried employees. Sole traders may encounter additional documentation requirements or stricter evaluations. Engaging a mortgage broker experienced with sole traders ensures access to tailored advice and exclusive deals from specialist lenders. Brokers streamline the application process, providing expert guidance, conducting extensive market research, and identifying lenders suited to specific circumstances. They help ensure a smooth, stress-free journey, avoiding potential pitfalls that might arise from applying directly through high-street banks.
Vulnerable Customer
We understand that from time to time our clients may find themselves dealing with circumstances which could mean they are potentially vulnerable. For example, a change in health, caring for a family member or coping with the loss of a loved one. There are many different types of vulnerability, and what makes one person vulnerable might not affect someone else. When we are vulnerable, our need for financial advice may change. However, admitting vulnerability or seeking help can sometimes feel hard.
If this is something you would like to discuss with us, please ask for a copy of our support guide or download a copy here. This guide is designed to help explain vulnerability and the ways in which we might be able to support you. If you feel any of the circumstances in the brochure apply to you, please talk to us.
