How to Improve Your Chances of Getting a Mortgage as a Sole Trader

You want to be a sole trader? Work as much or as little as you want, have your own schedule, follow your passion. Well that sounds pretty good until you find out banks don’t roll out the red carpet for solos like you. No, getting a mortgage as a self-employed is like finding your phone under the couch cushions: frustrating, slow and messy. But fear not, you’re not alone and even better, there is hope!

When you’re feeling the pain of rejection or too scared to even start the journey, breathe. You’ve already done the hard bit by building your business. Now, let’s get into tackling this mortgage business.

The Facts: What Makes It Harder for Independents?

Lenders like a regular paycheque. It’s predictable, stable and doesn’t have wild highs and lows. But you? You’ve taken the road less traveled. The one of busy and slow seasons. If you’re an independent trader, your income is a little bit... unpredictable. Maybe this year was good, but last year? Not so good.

Lenders see that variance and say, "Mmm, this may be a risky business." What they don’t always see is your hustle, your grit, your strategies for growth. That’s the thing with working for yourself: while you might have monetary fluctuations, you work really hard to make sure you come out on top. It’s frustrating, right? The only value seen as a steady income when there’s a lot more to it. Fortunately, thousands of self employed people get mortgages every day — and you can too.

First Things First: Get Your Financial House in Order

Starting out, the first thing to do is to make sure you have a good look at your finances before you even apply for a mortgage. Lenders will be looking at them with a microscope so be prepared.

Get Your Books in Order

If you’re up to date with your books, get them cleaned up. Make your income and expenses as clear as possible. Not a numbers person? Go get an accountant — don’t kid yourself, they’re worth the price of admission.

Show Them the Cash

Most lenders require two years of tax returns. These reports show that you have a steady income, if not a month to month one. Been in business for under two years? Don’t worry—there are lenders who’ll still consider you for one.

Improve Your Credit Score

Good credit scores are a shortcut to better mortgages. Pay off debts, limit your credit use and get on the electoral roll.

Save, Save, Save

The bigger your deposit the less risk you are to the lender. Get it to at least 10-20% of the value of the house.

Play the Game: What Lenders Want to See

Few people like to play games, but as a business owner, you’ve likely done your fair share of putting on a face and acting the part. Think of it as going on a date with a bank. You have to impress them don’t you? Here’s how to shine:

1. A Good History

Stability is the key. Be consistent with (or show improving) profits for the last two years.

2. Low Debts

Lenders don’t like debt. If you have loans or credit cards, pay them off first.

3. Affordability

Your mortgage should never be more than 25-35% of your income. Lenders will do the math, so if you haven’t, do it. Don’t go in asking for more than they’ll give you.

4. Proof of Income

SA302 documents or HMRC tax year reports are what you need. They’re like your payslips, but for entrepreneurs.

Know Your Options: Expert Lenders

If the high street banks aren’t being nice to you, don’t worry. There are specialist lenders out there that know the self employed industry inside out. They’re more flexible, they understand you might be making money from multiple sources and they won’t give you the side-eye over a couple of bad months.

Read about specialist sole trader mortgages at https://www.whenthebanksaysno.co.uk/self-employed-mortgages/sole-trader-mortgages/

These guys are experts at getting mortgages for people like you.

The Big Mistakes (And How To Fix Them)

But it’s not all smooth sailing. Again, you probably have lots of experience with that, though. These are the hurdles to jump — and how to do it:

Fluctuating Income

Had a good year, then a quiet one? Explain why. Maybe you invested in yourself or took time off to look after a relative. Lenders like context.

Tax Efficiency Backfiring

You may be squeezing out as much taxable income as possible which will reduce your credit score. Consider balancing tax savings with a decent income.

Overdrafts and Missed Payments

These are warning signs. Avoid them like the plague in the months leading up to your application.

Ace Your Application

Alright, it’s time to go for it. How to win your mortgage application:

1. Be Honest: Put all your cards on the table. The secret will be your downfall.

2. Pre-Approved: This shows sellers you know what you’re getting yourself into and they’ll know you mean business.

3. Buy From A Broker: A good broker is your mortgage fairy godmother. They know which lenders will lend to independent contractors and will save you hours and hours of time.

Bonus Tips: Do More Than You Think You Can

• Be Prepared: Start laying the financial groundwork a year before you apply.

• Diversify Income: If you have multiple income streams, that’s great.

• Head Down and Keep Going: Rejections happen. Don’t give up on them, just put the pieces together and start again.

The Upside

This is the thing — being a sole trader is not just a job, it’s a lifestyle. And that lifestyle has its quirks, struggles and, don’t forget, benefits. Yeah, mortgages might be harder for you than someone who works for someone else, but it’s possible.

Remember each no is a yes in waiting. And when you get into your dream home you’ll know how much you earned it.

The road might feel a little bumpy now, but every step brings you closer to the dream. Your resilience is your greatest asset, and before you know it, you’ll be standing on that welcome mat. Good luck!