Mortgages for sole traders and partnerships

As a rule of thumb, lenders will expect you to have been trading as a sole trader or partnership for at least 12 months before you apply for a mortgage – although many lenders will prefer to see more than a single year’s worth of accounts for the purposes of income verification (see below).

If you have been trading for less than a year but are a contractor, some lenders may be prepared to make a lending decision based on your current contract, using the day rate to work out an annual income figure for the purposes of making a lending affordability decision, and calculating the maximum amount you can borrow.

The short answer is no, but there are some exceptions. If your verified income figure meets the same affordability criteria as any other employed applicant, then you should qualify for the same mortgage products, and the same maximum loan-to-value (LTV) ratio for the mortgage. Typically, lenders’ maximum overall LTV is 95% (therefore requiring a 5% deposit); however, certain mortgage products require a bigger deposit to qualify for the deal.

If your mortgage application falls outside the lender’s standard assessment criteria, in some cases the lender might be prepared to offer the mortgage on the condition that a larger deposit is put down; this reduces the LTV ratio and therefore lessens the lender’s exposure to risk in the event of the borrower defaulting on payments.

Sole Trader versus Limited Company Mortgages

If you run your self-employed business as a limited company director, rather than a sole trader or partnership, things can be a little more complicated. This is because lenders can vary quite significantly in how they work out your total income for the purposes of affordability calculation and working out how much you can borrow. While all lenders will consider salary drawn from the company as a base income figure, some vary on whether and how they take into account dividend payments and profits retained within the company structure.

A number of lenders offer mortgage products specifically designed for limited company directors, and these can take the form of either personal mortgages (as would be granted to a sole trader or partner) or commercial mortgages where the lending is made to the limited company rather than the director; for example, some buy-to-let landlords purchase property via commercial, limited company mortgages.

Be aware that fees and interest rates on commercial mortgages are normally higher than for an equivalent personal mortgage. There may be other caveats too; for example, lenders may ask a limited company director to sign a personal guarantee, making them personally responsible for the mortgage debt to a degree beyond that which would normally apply to a limited liability company.

We cover mortgages for company directors in more depth here.

As we have discussed above, different lenders can take very different approaches to how they assess mortgage applications from people who are sole traders or in a partnership. This means that one of the major factors in choosing a mortgage is finding the lender that is best suited to your unique circumstances in terms of how long you have been trading, how many years’ accounts (or SA302s) they ask for, how they calculate affordability and maximum lending limit in relation to your income, and so on.

It is important to remember that there are many mortgage options out there beyond the big high-street banks and building societies. While some mainstream lenders have become more flexible in terms of lending to the self-employed in recent years, there are also a number of smaller, more niche lenders around who specialise in lending to sole traders, partners and limited company directors.

When looking at and comparing mortgage deals, it is vital to think beyond just the initial headline interest rate. Consider other factors such as:

1. Does the mortgage have an arrangement fee, and how does this compare with other mortgage products with the same or other lenders?
2. What type of mortgage product do you want: do you want the security of a fixed interest rate, or are you willing to accept the risk of rate increases with a variable tracker or capped product?
3. How long does the deal last, and are there any early repayment charges if you decide to move your mortgage to another lender either within the agreed product term, or after?

Mortgage Advice for the Sole Traders & Partnership

There can be advantages in using a mortgage broker to find and arrange a mortgage, beyond just the convenience of having someone else do all the legwork. At Just Mortgage Brokers we have years of experience in arranging mortgages for sole traders and partnerships; that means we know the market, we know how different lenders operate, and we can help you to find not just the mortgage deal that is right for you, but the lender that is the best fit to your needs.

Once we have found the right mortgage for you, we will handle your mortgage application from beginning to end, liaising on your behalf with the lender, your conveyancing solicitor and any other parties. Letting us take care of the ins and outs of your mortgage application means less hassle for you. Call us today on 0800 114 3753, or use our online contact form, to discuss your mortgage needs and how we can help.

At Just Mortgage Brokers we have access to numerous specialist and niche lenders. Coupled with our Mortgage Advisors specialist knowledge we are placed in a great position to be able to source a sole trader mortgage with bad credit.

Our Advisors will look at your individual circumstance and even assess your credit file before placing your case in front of a lender that specialises in sole trader mortgages with bad credit.