Can you get a mortgage as a freelancer?
Yes, if you’re a freelancer it’s possible to obtain a mortgage. However, even though you may have the same options as an employed person earning a similar amount, lenders tend to view and treat you quite differently.
This is due to the nature of your income being more complex than someone who is in regular employment. Although, you’ll be pleased to know that every year there are new lenders and mortgage products being introduced that are tailored to the self-employed.
In turn, this has made getting a mortgage as a freelancer much more straightforward in recent times.
WHAT CHALLENGES DO FREELANCERS FACE WHEN LOOKING FOR A MORTGAGE?
High-street lenders often aren’t well-equipped to deal with freelancers. Most high-street lenders are used to the standardised “tick-box” application, therefore, they have no trouble reading a payslip.
However, they may not know how to interpret complex freelance accounts that can typically include variable income from multiple income streams. This puts freelancers at an immediate disadvantage when applying for a mortgage.
Another advantage an employee has over a freelancer is a guarantee of work, which can be proved by payslips. Freelancers on the other hand can never guarantee they will always have work. Therefore, they will need to provide proof of work to show lenders they can maintain income in order to meet mortgage payments.
Getting final approval for a mortgage can also take longer for a freelancer, so aim to build some extra time into the process. If you’re unsure about your mortgage eligibility, reach out today and we will pair you with one of our expert advisors.
WHAT TYPE OF MORTGAGE SHOULD I GET AS A FREELANCER?
There is actually no such thing as a “self-employed mortgage” or a “freelancer mortgage”. Instead, everyone potentially has access to the same deals – the tricky part is being accepted.
As freelancers generally have a variable income, they can benefit from fixed-rate mortgages that allow them to budget. Alternatively, flexible mortgages that allow the borrower to overpay or underpay depending on circumstances can be useful.
Another type of mortgage that might work well for a freelancer is an offset mortgage. With this, the mortgage is linked to whatever savings you hold with the same lender.
Say the mortgage is for £120,000 and you hold £15,000 in savings; you would pay mortgage interest on £105,000, rather than the full £120,000. This is because the amount of savings held is taken into consideration. In addition to any actual savings they may have, freelancers generally set money aside each month for tax, so they can benefit from that too.
HOW DO I PROVE MY INCOME AS A FREELANCER?
A freelancer will typically have to provide a minimum of three months’ worth of payslips and their business accounts in order to prove their income. It can benefit to get your accounts prepared by a qualified accountant. Most lenders will want to see three years’ worth of accounts, however certain specialist mortgage lenders for freelancers will take one or two years’ worth.
Another difference to a conventional employee is that if you have three years’ worth of accounts that show an upward trend, the lender will probably take an average and work with that.
If, however, your most recent year showed a drop in earnings – perhaps because you took a break for example, then they may work with the lower figure. This will directly affect how much you can borrow.
HOW MUCH CAN I BORROW AS A FREELANCER?
Unfortunately, you can’t just take your last year’s income and assume you will be able to borrow a multiple of that. When deciding how much they’re prepared to offer, lenders will carry out an affordability assessment.
To do this, they will look at factors like your income and your expenditure and work out what they believe you can afford to repay. Your credit rating and deposit size will also have an impact on their decision.
If you have a poor credit record and a small deposit, it’s likely to reduce the amount you can borrow and increase the rate of interest you have to pay for the privilege.
With an exemplary credit record and a larger than average deposit, the opposite is likely to be true.
In general, lenders usually allow freelancers to borrow between 4 to 5 times their annual income.
To get an accurate understanding of what you could borrow, reach out today. One of our expert advisors can discuss your needs over a free no-obligation consultation.
INCREASING YOUR CHANCES OF GETTING ACCEPTED FOR A MORTGAGE AS A FREELANCER
As mentioned above, getting a mortgage as a freelancer can be a bit more challenging than if you were in conventional employment. However, there are some steps you can take to better increase your chances of success. The majority of them involve making yourself appealing to lenders and showing yourself as a low-risk borrower.
Some steps you can follow include:
- Ensure your credit is in a good position. Having a track record of comfortably borrowing money can make you more appealing to lenders, as they know you’re more likely to make mortgage payments.
- Put down a larger than average deposit. You’ll be surprised that saving up for an extra 6 months can make a big difference, this is because a lender will be lending you less money against a home.
- Put together and use as much evidence of previous jobs and contracts you have received. This shows lenders that you’re able to consistently receive a steady level of income, and in turn, giving a lender more security in knowing you’ll be able to keep up with payments. If you do have any gaps in your employment, be prepared to tell a lender why this was.
- Working with an expert mortgage broker for freelancers. A mortgage broker’s experience can prove invaluable as they will know what lender to pair you with based on your circumstances. Furthermore, they can also help you prepare your application and paint you in the best light to a potential lender.
The team of experienced brokers at IMC Mortgage Brokers understand how freelancers work, and we have access to thousands of products from hundreds of different lenders. This includes specialist deals that aren’t available on the high street.
If you need support in getting a freelancer mortgage, get in touch today. Our team are on hand to get you started on your mortgage journey and answer any questions you may have.
