Mortgage as a Sole Trader

Is it hard to get a mortgage as a sole trader? Is it harder for a sole trader to get a mortgage than for a PAYE employee?

No – it’s no harder. It’s just different, because lenders want other information and figures.

You’re also in more control of those numbers.

Someone employed gets their salary, their bonus or overtime, but you’re fully in control of your own destiny, so we look at different income details. Once we’ve got to the figure we need, which is the net profit figure that you pay tax on, the calculation lenders use is the same.

You might earn your money in a slightly different way and it might be more sporadic. That’s why we look at it over the year and not the last three months. When you’re self-employed, you might have good months and not-so-good ones. Your money might come in chunks through the year, so it’s the annual figure we’re looking at.

How is affordability assessed for sole traders?

In exactly the same way as anyone with a salary. It’s just how we get to that figure that’s different.

We’re going to look at your net profit from your SA302 or your tax calculation. That’s a document that summarises your income. Let’s say you generate money by selling bananas and you sell £100,000 worth in a year, but it costs you money to buy them, move them around, market the business and pay for machinery etc. That costs £50,000. The £50,000 left is your net profit.

That’s the figure we use to work out how much you can borrow. If someone employed came to us with a salary of £50,000, they would be able to borrow the same amount.

But if you’re PAYE and you get a pay rise this month, we can use that straight away. When you’re self-employed, you need the history. We’ll talk about that more in a minute, but we need that history to dictate that figure for us.

How does the remortgaging process work for a sole trader?

It’s absolutely the same. We look at your income as described a minute ago. We’ve got lots on the website about remortgaging, but essentially we will do it as early as possible. We choose a new lender and get it all set up, exactly the same as for anyone else.

Can a newly self-employed sole trader get a mortgage? Can I use one year of accounts instead of two or three?

If you’re newly self-employed, you’re one of the few people we can’t help. No one can. If you’ve just gone self-employed, we can’t do anything because we need that first year’s accounts.

It can be done with one year accounts instead of two, but there are fewer lenders to go to with that. It might also depend on what you did before. If you’re an employed electrician and you then go self-employed, you’ve got your first year under your belt and it’s broadly similar to being employed, we can help you. But we’re going to need that first year’s tax return.

Can I apply before my accounts are finalised?

No, we need the submitted accounts. We can get you an Agreement in Principle, though, if you know your figures. You might get to the end of March and know what your figures are for that tax year and they aren’t going to change. We can do an Agreement in Principle based on that.

You can get an Agreement in Principle online, too. But to do the mortgage application, we need the final figures. They need to have been submitted so we can provide evidence of your income to the lender straight away.

The lender only gives us a few days or a couple of weeks to submit those documents, and if we don’t get all the information to them, they close the case down.

Are first-time buyer mortgages available to sole traders? If I’m a first-time buyer and a sole trader, can I get a mortgage?

Yes – the rules are exactly the same as for anyone else. It’s absolutely fine to be a sole trader.

I help lots of people who are first-time buyers and self-employed. The same principles apply – it’s all about your income and deposit.

What if my income fluctuates year to year?

Most self-employed people’s incomes will fluctuate year on year. If it’s broadly similar, no one’s going to ask any questions.

If it’s going up each year, lenders tend to take an average of two, while one or two will just take the latest year. If it’s going down, they’ll take the latest, lower year.

If income has gone up by more than a certain percentage, lenders might ask for justification. It’s not that they’re unhappy – we just need to explain why. You might have had a bumper year, or perhaps you bought some machinery the year before, and nothing this year. As long as there’s a reason, it’s generally fine.

Can additional income streams be included?

We can generally use most legal sources of income, as long as you are paying tax on them.

If you work for Dave the butcher on a Saturday and he gives you cash in hand, that’s not going to help us, I’m afraid. We can’t use that.

But if it’s taxable income in the UK, and you’re declaring it to HMRC, we can use it.

How important is credit score for a sole trader? Does business debt affect my personal mortgage application?

Yes, it’s the same as for everyone else. The standard rules apply – we need a reasonable credit score. If not, we’ll be going to a specialist lender. It depends how bad the credit situation is, but yes, it certainly is a factor.

Business debt’s a funny one – for a limited company, the company owns the debt, not the director. But when you’re a sole trader, that debt is in your name. We can sometimes end up counting things twice, which is the downside.

You might have finance on a van or a loan for equipment. It’s on your personal credit file, but your accountant might put it through as a business expense. It’s reducing your profit, but it’s also shown on your credit file.

You do have to be a bit careful about how much debt you take out for your business as a sole trader. It’s not ideal to have loads of debt, because it’s in your personal name. There’s no separate legal entity like there is for a limited company.

Should I reduce expenses before applying for a mortgage?

Ultimately, the more net profit you’ve made, the more you can borrow. HMRC aren’t going to mind if you reduce your expenses, because you’ll be paying more tax, but you should obviously do your figures in line with what’s actually happening.

HMRC would have a problem if you put more expenses through than necessary. But the higher your profit, the more you can borrow – although it has to be done for year end.

Let’s say it’s August 2026 – we’ll use your April 2026 figures if you’ve done them. It’s no good saying your profit’s going to be bigger this year, because we’re not there yet.

If you’re getting year-end figures done before you apply for a mortgage, then the more net profit you have, the better. If we’re using older figures, it probably won’t matter too much.

We were just talking about loans and debts – and again, the less of those you’ve got, the more you can borrow. Fewer finance payments and credit card debt will help with your mortgage application.

How long does a sole trader mortgage application take?

It could be a few days or a few weeks. It depends on the lender, and also how complex your situation is. External factors can have an impact, as well.

Right now, in April 2026, it’s very busy. Rates have been going up and there’s a lot happening, so lenders’ timescales are slipping. It’s taking them a long time to do things because they’re so inundated with caseload.

But it’s not always like that. Generally, two to three weeks is standard, but it can vary depending on your actual situation.

What common mistakes do sole traders make when applying?

We’ve talked about making sure there’s a reasonable profit. Your accountant will want to keep your tax bill down by putting through all your expenses – but while minimal profit is fine for paying tax, it doesn’t help with getting a mortgage.

You can’t have both, unfortunately. People are delighted not to be paying much tax, but they can be shooting themselves in the foot for mortgage purposes.

Generally, being ready is key – keeping debt to a minimum and your credit file clean will help your chances of approval.

Get your accounts done early. When we get to October each year, we need updated accounts, as lenders only use figures that are 18 months old for the self-employed. In October, the previous year’s April figures are now too old. We’d want numbers from April the same year.

You don’t officially have to do them until the following January, and people can be reluctant to do it sooner, but lenders want those figures. It doesn’t mean you have to pay the tax earlier, just means get the numbers done.

We’ve covered a lot over the two episodes – is there anything to add?

Always use a mortgage broker. Obviously, it doesn’t have to be us. But when you add in any complication – and being self-employed is one of them – some lenders are much better than others. A broker will help you find a mortgage to suit your situation and keep everything simple with less stress.

Key Takeaways:

• Getting a mortgage is no harder for a sole trader than for a PAYE employee; the process is just different because lenders require specific information and figures.
• Affordability is assessed based on your annual net profit figure, which is taken from your SA302 or tax calculation document and is treated like a salary.
• You cannot apply as a newly self-employed individual; you must have your first full year’s accounts and tax return submitted to be considered by lenders.
• A common mistake is minimising your net profit through expenses to lower your tax bill, as this simultaneously reduces the amount you can borrow for a mortgage.
• Since business debt for a sole trader is in your personal name, unlike for a limited company, you must be careful how much debt you take on as it will affect your personal mortgage application.
  
  

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

For specialist tax advice, please refer to an accountant or tax specialist.