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We often get asked if a self-employed person or a sole trader can get a mortgage, the answer is yes!  This is a specialist area, and you need to make sure you work with a Mortgage Broker who not only understands mortgages but accounts too, as these types of mortgages are tailored to different trading styles.

 

Here at Hello Mortgage, we have an ex-accountant who looks after our self-employed team to make sure the advice you get is tailored to your specific needs.  Understanding your accounts is a key consideration when applying for a sole trader or self-employed mortgage.

 

In theory mortgages for contractors or self-employed people are no different to standard mortgages, but the way they are assessed is different.  A standard mortgage application for an employed person is typically based on their payslip income and outgoings.  This isn’t the case for self-employed/sole trader mortgages where the income validation requirements are much more in-depth.

Can Sole Traders get a mortgage?

There are options available to sole traders but there are often additional requirements such as a lower Loan to Value, minimum trading requirement and how your accounts are prepared (most lenders like you to use a qualified accountant).

 

You can waste a lot of time trying to source your own self-employed/sole trader mortgage.

To make sure you get the best possible results you should use a specialist Mortgage Broker.

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How do I prove my income and how long do I need to have traded for?

There are many myths about the minimum trading period for the self-employed/sole trader.  Typically, you should have at least 12 months of trading history before you apply for a sole trader mortgage.

 

Be careful of brokers who say you can get a mortgage with 6 months of trading or even 3 as it's not that simple.  Other factors like continuous employment, a second applicant, if the mortgage is for a buy to let can reduce the minimum trading time, but not in every case.

 

To make sure you have the best possible chance of success a self-employed person or sole trader should have at least 12 months of trading history and should also speak to a specialist Mortgage Adviser.

Self-employed in a Limited Company

We strongly recommend you have your annual accounts prepared and filed by an accountant.  This will give the lender comfort that your numbers are correct and independently checked.  The lender will use your accounts to assess your income.

 

Your income may be more complex and include elements of PAYE, Dividends and other income such as investment income.  Our team of specialist sole trader Mortgage Advisors are experts in dealing with complex income and will work with you to make sure as much of your income as possible is used towards your affordability.

Contractor or Freelancer

You should expect to be asked for your 4 most recent contracts, a copy of your SA302s/tax calculations and a copy of your HMRC tax year overview.  It always helps if your tax return is prepared and filed by an accountant, rather than yourself.  The lender will use your filed tax returns to validate your income and assess your affordability.

 

There may be other considerations depending on the type of contract you have and the sector you work in.  Mortgages for IT consultants are vastly different to Mortgages for Agency Workers, with many lenders wanting to see at least 12 months of continuous employment.  You may find that some lenders want a minimum notice period of 3 months for contractors.

Sole Trader

You will generally be expected to produce your last 3 years SA302s/Tax calculations.  You may also need to produce additional personal current account statements or explain how your income is generated.

 

There are a small number of lenders who will consider self-employed applications with 1 year’s accounts.

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What documents should a self-employed person or sole trader provide?

Most lenders ask for the same documents, however, your Mortgage Broker will ask for additional documentation to ensure the mortgage we recommend is the best fit for you.

 

Your Mortgage Broker will request:

 

  • 1 to 3 years SA302’s
  • 3 months business bank statements
  • 3 months personal bank statements
  • Photo ID
  • Details of any additional income
  • Your credit reports

 

The above isn’t exhaustive and further documentation may be required depending on how complex your mortgage application is.

Can I have a self-certified mortgage?

No.  The Financial Conduct Authority banned self-cert mortgages in 2010 due to the risks associated with them.  With a Self-certified mortgage, you specified how much you earn when you applied without supplying any documents to prove your income.  Self-certified mortgages were heavily abused, and a lot of people found themselves unable to make their monthly repayments.

How will my sole trader/self-employed mortgage application be assessed?

We often get asked how lenders view a sole trader/self-employed mortgage application, the honest answer is, no two lenders are the same.

Loan to Value (LTV)

Most people assume that sole traders/self-employed cant get a high LTV mortgage.  This isn’t always the case; many applicants are accepted with 5% deposits.  It depends on your trading history and profitability.

Years Trading

As mentioned above, sole trader/self-employed mortgage lenders need a minimum of 12 months of trading. The majority of lenders will request 3 years as a minimum.

Income Multiples

Unlike standard employed income, sole traders and the self-employed can have seasonal income.  To overcome this a lender will use an average of your last 3 years net profits.  Where you don’t have 3 years an accountants certificate or future contracts may be considered.

 

An average of your last 2 years accounts or last 2 filed tax assessments is typically sufficient to prove income.

 

Where your net profits decline, the lower of the income will be used regardless of the average.

What percentage of shares can I own in a limited company before I am classed as self-employed?

If you are a director in a limited company you will be classed as self-employed if you own 20% or more of the shares within the business.  Some lenders have a higher threshold of 25% but these tend to be specialist lenders whose rates can be more expensive

I have taken a SEISS grant, will this impact my mortgage application?

Potentially.  Some lenders will discount the SEISS grants from your income meaning you won’t be able to borrow as much.  Some lenders won’t consider your application if you have taken a SEISS grant in the last 3 months or where your trading income isn’t stable.  In the majority of cases, you will be asked for a screenshot from your HMRC account confirming how much you’ve taken in grants.

Bad Credit

Sole traders and the self-employed can get a mortgage if they have bad credit, but the application will be assessed on the level of bad credit.  If you have particularly bad credit and less than 3 years of trading your options will be extremely limited.  On the flip side, if you have one of two missed payments you will still have options.

Mortgage Interest Rates for Sole Traders or Self-employed

Ordinally the interest rate you will pay will be the same as those available to everyone else.  This is subjective and depends on your unique needs, for example, you will pay a higher rate if you haven’t been trading for 3 or more years or if you have bad credit and or a low deposit.

Are sole trader/self-employed mortgages classed as commercial mortgages?

If you are applying for a mortgage to purchase your main residency the answer is no.  If you were applying for a mortgage to purchase an investment property or a property that you will let out, then the answer is yes.

With you every step of the way

Step

Apply Online

Start your mortgage application online with our quick and easy enquiry form.

Step

Speak to an advisor

Once we have your enquiry one of our Mortgage Advisers will contact you to discuss your options

Step

Let us work our magic

We will work tirelessly to find you the best possible mortgage, tailored to your exact requirements

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

 

Hello Mortgage Limited is registered in England and Wales. Registered Office: Suite 20, Cookson House, River Drive, South Shields, Tyne & Wear, NE33 1TL. Company Number: 10414170. DPA number ZA332902

 

Hello Mortgage Limited is an Appointed Representative of MyInfinity Finance  Limited which is authorised and regulated by the Financial Conduct Authority 672182.

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