Is there a limit on how long I need to be a sole trader for before getting a mortgage?
Unlike the pre-2008 world, a proven history of your trading is now required by a lender when they’re establishing your annual income.
Sole-trader income requirements for a mortgage: If you’re a sole trader getting a mortgage is the same process and requires the same evidence as if you’re a partnership, with a minimum of 12 months trading.
Partnership mortgage income requirements: 12 months as above
Contractors: If you are a sole-trader contractor who has not yet fulfilled 12 months trading, it is possible to use your day-rate income
CIS scheme: As with contractors, it’s possible to borrow based on your remittance slips and gross income as if you were employed, from just 6 months of trading.
All sole traders and partnerships have the common tax year end date in line with the UK Financial Tax year (ending April 5th), and lending is almost always based on your annual accounts / tax returns filed from this date.
Whilst it’s not imperative that you have an accountant, you may find it easier to have someone look after your business figures. If you have accounts that the lenders can use then they will, as long as they are drawn up and submitted to the HMRC by a certified accountant.
If you don’t have a certified accountant drawing up your books, then you’ll need your self-assessment tax year overview, and SA302 documents.
What impacts sole trader and partnership mortgages?As long as the loan is classed as affordable, then the deposit required for sole trader and partnerships is usually the same as standard employed applicants.
If you don’t quite meet the standard lending criteria, then there are specialist lenders that offer more flexible underwriting, but they require a larger deposit.
Most lenders require three years’ trading history before they will class your income as stable enough to lend on. However, there are lenders out there that will consider your application if you don’t have three years’ accounts.
If you’re a sole trader, then your application for a mortgage will have to be as a sole trader.
However, if you’re a Limited company director, then you could apply using your personal income in the same way a sole trader would, so long as it’s before the end of your company tax year.
You could use your self-assessment tax return to evidence your income but, as Limited company tax years often end differently to personal ones, when you apply for a mortgage will affect which lenders you can apply to.
Sole trader commercial mortgages
Commercial mortgages are borrowings made by companies, on company property or to buy or fund a company itself.
This may be to buy a business or rental property, but is not to be confused with buying a personal property made by someone who owns a company – this is a personal mortgage using commercial income.
For further information on applying for a mortgage as a self-employed applicant, contact one of our expert advisers and they will be able to talk you through the next steps.