A Comprehensive Guide to Sole Trader Getting a Mortgage

Securing a mortgage as a sole trader can be challenging compared to salaried employment. This is because sole traders and other self-employed people, such as company directors, often lack traditional forms of evidence of income, like payslips or employer references. Sole trader mortgages require additional preparation, such as providing SA302 documents, tax year overviews, and certified accounts, to verify your sole trader income and financial stability.

In this guide, we’ll explore the mortgage application process for sole traders, including the role of a mortgage broker, how to improve your chances of securing a mortgage deal, and why specialist lenders may be your best option. Whether you’re a first-time buyer or looking to climb the property ladder, this article provides expert advice to help you succeed.

The article is updated as of Jan 9, 2025

Top UK Banks and Building Societies for Sole Trader Mortgages in 2025

Understanding Mortgage Challenges for Sole Traders

Why Do Sole Traders Face Unique Mortgage Challenges?

Sole trader earnings can vary month to month, making it harder for street banks and mainstream lenders to assess reliable income. Sole traders also lack traditional employment status, meaning lenders must rely on alternative evidence of income, such as bank statements, annual figures, and SA302 tax calculation forms. This irregular income increases the perceived risk by lenders, leading to stricter lending criteria.

Additionally, limited trading history can pose a challenge. Many lenders require at least one to three years of trading history and financial accounts to assess your annual income and affordability. This creates difficulties for those with a limited trading history or recent transition to a limited company structure.

Common Misconceptions About Sole Trader Mortgages

There’s a widespread belief that sole traders or other self-employed people cannot secure a mortgage. While it’s true that the mortgage requirements are different, there are suitable lenders and types of mortgages designed specifically for self-employed mortgage applicants. For example, specialist lenders often account for alternative income streams, such as dividend income, retained profits, and day rates.

Another misconception is that adverse credit or bad credit history disqualifies you from getting a mortgage. While it may limit options with mainstream lenders, there are self-certification mortgages or adverse credit mortgages offered by specialist lenders, provided you meet the affordability criteria.

How Mortgage Lenders Assess Sole Traders

Income Verification for Sole Trader Getting a Mortgage

Lenders require clear and accurate proof of income to process a successful application. As a sole trader, you’ll need to provide:

• SA302 documents: These HMRC-issued forms summarise your taxable income over the latest tax years.
• Tax year overviews: These complement your SA302s and show taxes paid to HMRC.
• Bank statements: Typically, lenders ask for 3-6 months of business bank statements and personal bank statements.
• Certified accounts: Professionally prepared financial records offer a comprehensive view of your trading history.

These documents allow lenders to calculate your average income and assess your ability to make regular mortgage repayments, even during bad months or periods of irregular income.

Affordability Calculations for Sole Trader Mortgages

Affordability calculators play a crucial role in determining the size of your loan. For sole traders, lenders focus on net profit as a source of income. If your sole trader income fluctuates, the lender may average your earnings across the last few tax years to determine your true income.

For limited company directors, affordability is based on base salary, dividend payments, and occasionally retained profits. If you have additional income streams, such as rental income or commercial income, this may also be considered by specialist lenders. Accurate records are essential for presenting a complete financial picture to mortgage providers.

Credit History and Financial Stability

Maintaining a good credit rating is vital when applying for a mortgage. Your credit report shows lenders your risk level and debt liabilities. To improve your creditworthiness:

• Ensure all utility bills, council tax, and credit card payments are up to date.
• Register on the electoral roll to verify your address records.
• Reduce debt liabilities and avoid additional debts during the mortgage term.

Some lenders also consider your deposit size when assessing risk. Offering a larger deposit—such as 10-15% or more—can increase your chances of approval and may even secure competitive rates.

Why Might New Limited Company Directors Struggle to Get a Mortgage?

While transitioning from a sole trader to a limited company offers numerous financial advantages, securing a mortgage as a newly-formed company director can present unique challenges.

As a company director, you are often classified as self-employed. Like other self-employed individuals, you may find it harder to access credit, including mortgages, due to stricter lending criteria. Mortgage providers require strong evidence that your income is sufficient and stable enough to cover your mortgage repayments, both now and in the long term. Affordability remains a critical factor under the rules set by the Financial Conduct Authority (FCA) and is enforced by lenders to minimise risk.

One key issue is how lenders assess income for limited company directors. Many lenders only consider the salary you withdraw as part of your income, excluding retained profits left in the company to support its growth. This approach can disadvantage directors who intentionally keep their salary below the tax threshold for financial efficiency.

Furthermore, newly incorporated companies often lack the trading history mortgage providers require. Even if you have an extensive track record as a successful sole trader, lenders may still view your limited company as a fresh entity and demand at least two to three years of audited accounts to demonstrate financial stability.

Finding Solutions for Limited Company Directors

Fortunately, not all mortgage providers take the same approach. Some specialist lenders and mortgage brokers consider retained profits, dividend income, and the overall profitability of your business as part of your income. These lenders may also accept shorter trading histories or alternative evidence of income, such as SA302 documents, bank statements, and certified accounts.

Seeking expert advice from an experienced mortgage broker can help you identify lenders who are more flexible in their requirements. These professionals can assist in tailoring your mortgage application to highlight your financial stability and secure a deal suited to your unique circumstances.

Next Steps

If you are also a sole trader and interested in buying a property you can contact our team of specialist mortgage brokers who can help you with your application process.