Sole Trader Mortgages Up To 95% LTV

How many year's books will I need?

Most high street lenders require a minimum of two years sole trader business accounts. They usually take an average of the last two or three years net profit when deciding how much you can borrow.

However, a handful of lenders in the market are willing to consider mortgage applications with just one year's accounts from sole traders and other self-employed people.

Assessing net profits before tax

The ideal scenario is to show the mortgage company net profit increasing each year. But stable, consistent profits are fine.

If net profits have fallen in the most recent year, the lender may request further information to understand why. Understandably, they'll want to ensure the business is viable going forward.  

Importantly, they'll probably use the latest year's lower figure to calculate a maximum borrowing amount.

Determining if rising net profits are sustainable

Similarly, if the most recent year shows a large increase in net profit, the lender could seek confirmation from your accountant that it's not simply due to one-off factors.

Is your accountant minimising net profit?

If your accountant usually minimises your business net profit (and thus your tax burden) by maximising allowances and expenses, ensure you notify them well in advance of your property purchase plans, so they can maximise profits where possible.

What income criteria do lenders use for sole traders?

Every bank, building society or niche lender will have it's own eligibility criteria for sole traders. But generally, they'll want to see verifiable evidence of:

• A stable or growing income capable of servicing the mortgage loan.
• A decent credit history (though many lenders will consider applicants with adverse credit on their file).
• Manageable or low levels of credit commitments (car finance, credit cards, personal loans child maintenance etc), if any.
• Good financial management. In other words, no obvious signs of financial distress such as a recent payday loan or regular overdraft usage.

Can I get a sole trader mortgage with bad credit?

The short answer is yes.  Many mortgage providers are happy to consider applicants with mild adverse credit on their file. Especially if the credit impairment is more than a two or three years old.  

More recent adverse such as CCJs and defaults is acceptable to some lenders, as long as they are satisfied, limited in number (usually 1 or 2 max) and don't exceed a maximum combined value (£500 is common).

Severe adverse credit

For very poor credit, like bankruptcy or an IVA, we may still be able to help, but the devil is in the detail. Some lenders need the insolvency to have been discharged/satisfied at least 6 years ago. Others require 3 or 4 years to have passed. And a tiny minority will consider cases after 1 or 2 years.

Mortgage affordability explained

One of the first questions we get asked when someone makes a mortgage enquiry with us is: "how much can I borrow?"

The answer is...it depends.

Before 2014, lenders based their decisions on a straightforward income multiple. For example if you and your partner had a joint income of £50000, a mortgage provider working to an income multiple of 4 would allow you to borrow £200,000.

The introduction of the Mortgage Market Review

As a result of the 2008 financial crisis, the Mortgage Market Review of 2014 introduced much stricter regulations.  

What's more, one of the biggest changes was the requirement for banks, building societies and other lenders to carry out a detailed affordability assessment, including a financial 'stress test', before agreeing a mortgage deal.

Stress testing mortgage affordability at 3% above the SVR rate

No longer is income the sole determining factor. Lenders are now required to assess if the monthly mortgage payment is affordable for the borrower at an interest rate 3% above the lenders Standard Variable Rate (SVR).

So even though interest rates are still incredibly low by historical measures, if a lender's SVR is 4.49%, then the 'stress test' rate will be 7.49%.

To do this, all mortgage providers have to consider a range of factors including, but not limited to:

• Sole trader income (net profit before tax)
• Trading performance and duration
• Credit score and history
• Ongoing credit commitments
• Other discretionary outgoings
• Whether there are any financial dependents (children and/or elderly relatives)
• Other income sources like pension or rental income
• The age of the applicant(s).
• The mortgage term
• The tenure of the property being bought.  Freehold, leasehold, etc.

Should a lender deem the mortgage is unaffordable, that doesn't necessarily mean it's the end of the road.  The deal could just need a little tweaking. For example, by increasing your deposit size a little to reduce the loan amount, or by increasing the mortgage term.

How to improve your chances of getting a sole trader mortgage?

Here's a few ideas that can help maximise your chances of getting accepted for a mortgage:

1. If you can, pay off any credit cards, personal loans or overdrafts in advance. This will show lenders your finances are in good shape.
2. Check your credit file and report any incorrect information to the appropriate credit reporting agency (Equifax, Experian etc).
3. Let your accountant know about your mortgage plans well in advance, so he can prepare your accounts as soon as possible after April 5th.
4. Ask your accountant to advise if there's any potential to maximise your net profit before the tax year finishes.

What docs will I need to provide the lender?

Please read our in-depth mortgage documentation guide which lists all the documents lenders need from sole traders.

Get a sole trader mortgage quote

As an independent, whole-of-market, self employed mortgage broker, we'll quickly source the most suitable deal for your particular circumstances.

We have access to thousands of mortgage products from a huge panel of mainstream and niche lenders. If you'd like to discuss your mortgage options, call 0117 205 0655 or get started here.