Getting a mortgage for a sole trader: turnover or profit?

What figures from your business will lenders use when you apply for a mortgage? 

It is common misconception that lenders use turnover or gross profit figures to determine how much you can borrow.

If you are a sole trader, lenders will take your net profit into account when calculating your affordability. In most cases your net profit will be averaged over the last two or three years. There are a small number of lenders who will base their calculation on the latest annual figures which could increase your borrowing capacity if your last year’s profit was higher than that in previous years. 

Your turnover might be high, but how much profit do you make? By way of an example, let`s say, in the past financial year you issued invoices totalling to £100,000. This figure is your business turnover.  When you deduct all your expenses and costs, and you are left with £40,000, this is your taxable profit, and it is this figure lenders will use for their affordability calculation.  

If you have questions about your business accounts and your potential mortgage affordability – we are here to assist you so get in touch.