Sole trader mortgages
There’s no ‘one-size-fits-all’ description of a self-employed sole trader. So it’s no wonder treatment from lenders differs so wildly.
We’ve helped thousands of sole traders get a mortgage since 2004. Let us be the model of consistency you can depend on:
- Mortgages from one year’s trading only
- Accommodating all types of sole traders
- Access to specialist underwriting teams
- Bad credit mortgages for sole traders
All lenders take their own different approaches to mortgages for sole traders. What that means for the lending criteria that sole traders have to meet, you can boil down to one word: risk.
Every flexible worker friendly mortgage provider has its own definition of risk. The criteria they use help them assess your income and risk against each other.
Most advisors you talk to in-branch or at call centres will lump you with everyone else who’s ‘self-employed’. Yes, you are self-employed. But, we know that sole traders’ income is more nuanced than simply working from accounts or an SA302.
What type of sole trader are you?
There are generally three types of worker who classifies themselves as a sole trader:
- Freelancer/independently owned business operator
- Day-rate/short-term contractor
- CIS contractor
It’s essential to distinguish between the three. That’s because mortgage lenders use different criteria to assess the mortgage affordability of each type.
Freelancer/independently owned business operator
This type of work is probably truest to what a lender would interpret as ‘self-employed’. It covers everything from freelancers working on ad hoc contracts to business owners.
These could be hairdressers, fast food businesses, locums, photographers, trades (plumbers, electricians, etc.), market stallholders, and more. Their work, therefore their income, fluctuates based on demand for their services/products.
Most lenders insist on 12 months’ trading/signed-off accounts minimum to consider them for a mortgage. The more trading history you can evidence, the lower risk you (should) present to underwriters.
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CIS contractor
CIS contractors are (often) subcontractors registered in the Construction Industry Scheme. Despite them being an independent entity, they will receive payslips and have 20% tax deducted at source.
Again, there are specific mortgages for CIS contractors. Rather than working off signed-off accounts, some lenders use their gross day rate as the basis for mortgage affordability.
Day-rate/short-term contractor
Day-rate contractors work on short-term contracts of typically six- or 12-months’ duration. If a contract is inside IR35, they’ll work through an umbrella payroll company. If it’s outside IR35, they’ll use a PSC payment structure.
More than thirty UK lenders have special criteria for contractors: contract-based underwriting. This works off their gross contract rate and avails the contractor of a considerably higher mortgage ceiling.
What about company directors?
Company directors’ income can be complex for lenders to determine. That’s because they fall somewhere between employee, contractor and sole trader.
They’re self-employed, as they are often the sole decision maker in the company. But they will pay themselves a salary from their company. This is more like an employee than a sole trader.
To maximise tax advantages, they’ll draw dividends to top up their salary. Contractors using limited company payment structures also draw dividends. But the only salary contractors pay themselves is enough to qualify for stamp.
Company directors are a real amalgam of all three. For more details, visit our dedicated page, Mortgages for company directors.
The sole trader mortgage affordability assessment
These are the criteria for what we’d class as self-employed: freelancers and independent business owners. If you’re a contractor or CIS contractor, we’d use your gross day rate instead (as referenced above).
Every lender sets their criteria based on its interpretation of risk. But, as a rule, they’ll lend 5 × your annual declared net profits. This can be affected by other criteria. Your credit rating*, years’ trading, profit trajectory/Tax Year Overview, and even the area of your speciality. Each lender will weight each component based on its own risk profile.
If you averaged £60,000 net profit over the last two years, a lender might offer you a £300,000 mortgage. In simple figures: £60,000 x 5 = £300,000. But this would depend on you ticking all their boxes, including your deposit. There are 5% mortgages available, but lenders would much prefer you have 10% to put down.
The documents you might need to prove (‘evidence’) your income would be:
- Your relevant SA302(s) and tax year overview
- Signed-off accounts from a registered accountant
- Anything from three to twelve months’ bank statements
How much can I borrow?
Sole trader mortgages and poor/adverse credit
With the dynamic world we live in, there's no longer the stigma around bad credit as there once was. It doesn't matter how you work, markets can throw you a curveball.
As such, a select few lenders have made it their mission to offer mortgages for bad credit. This service extends to sole traders as much as to anyone else.
Whether you’re a good fit for one of their mortgages will depend on:
- The type of bad credit you have/have had
- The extent of its adversity
- What reparations you’ve made/are making to resolve the issue(s)
We have great relationships with all our lenders’ underwriting teams, including at specialist lenders. If you’re candid about your situation, our brokers can get to the heart of the matter. On that basis, we can approach bad credit mortgage lenders on your behalf.
However you work as a sole trader, you’re happy going it alone. But, when it comes to your mortgage, you need an experienced team on your side. Start talking tactics with our brokers today.
Choose the sole trader mortgage experts
Specialist expertise
We specialise in mortgages for contractors of all types. That means we can bridge the gap between complex sole trader income and contractor-friendly lenders.
Collaboration with underwriters
We have direct lines to specialist underwriting teams. This ensures they give you a fair assessment based on your true mortgage affordability.
Simplifying the application process
We simplify the contractor mortgage process. Our brokers give you expert guidance on the documents you need to best support your application.
Maximise your chance of approval
On their own, each step may seem small. But combined, they maximise the chance that our chosen contractor-friendly lender will approve your mortgage.
Types of mortgage available
Our flexible, competitive mortgages are designed to make your homeownership journey easier. We offer a range of mortgages designed for contractors working under an umbrella payroll company, including:
First-time buyer mortgages
Home mover mortgages
Remortgages
Buy-to-let mortgages
"Day 1" mortgages
Compare the best mortgage deals for sole traders
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