What we cover in this guide
- Try our Self-Employed mortgage calculator
- Read our Self-Employed mortgage guide
- What challenges do Freelancers face when looking for a mortgage?
- Mortgages for Freelancers information
- How do I prove my income as a Freelancer?
- How much can I borrow as a Freelancer? And how much will it cost?
- Mortgage advice for Freelancers
What challenges do Freelancers face when looking for a mortgage?
High street lenders use systems with quite narrow criteria for assessing mortgage applicants, which are simply not geared to considering a freelancer’s business or income set-up. Workers with variable income streams, and potentially far more complex accounts, than a conventional employee will not tick all the usual boxes on a high street lender’s forms or conform to their usual customer template, which will, rightly or wrongly, put you at a disadvantage.
Seeing freelancers as a greater risk can seem illogical when you consider that an employee could lose their job three months down the line after an agreed mortgage, but it’s a perception that still persists in less-enlightened circles.
However, there are many lenders in the market who take a different attitude to freelancers looking for a mortgage, and have a different approach to assessing present and future income, to give a more accurate picture of your financial position. If you have the right documentation and proof of ongoing work, then you should stand no lesser chance than any other applicant.
Mortgages for Freelancers Information
How do I prove my income as a Freelancer?
While a traditional employee has to provide payslips, a freelancer needs to show their business accounts to prove their income. At least three months of payslips are usually requested, but a freelancer might have to provide up to three years of accounts, drawn up by a chartered or certified accountant, in order to satisfy the lender–but in recent years, just one or two years’ accounts has been acceptable to certain lenders.
A side-effect of having three years’ worth of accounts is that, even if your income shows an upward trend, a lender will typically take an average across the three years, in effect negating your success, even if your last year was a breakthrough. Or, if your income has declined in the last year, perhaps due to ill health or a break to update your skills, the lender might only take the lowest figure. In every case, this interpretation of your annual income will have an impact on the amount you will be able to borrow.
With some specialist lenders taking a more open-minded approach to calculate a more accurate assessment of your ongoing level of income, this might be less of a worry than it has been previously, but you will need to ask your mortgage adviser about the best lenders to approach.
How much can I borrow as a Freelancer? And how much will it cost?
While some specialist lenders will consider a mortgage based on your last year’s accounts, in general as a freelancer you cannot expect to take your most recent annual figure and borrow the standard multiple of that (usually x5). All lenders will have their own criteria and will carry out an affordability assessment to determine how much they will be willing to lend to you–this will look at your income and expenditure to calculate what you will be able to repay on a monthly basis.
You credit rating will also have some bearing on their assessment, and if you have black marks on your credit records–anything from late payments on a phone bill to County Court Judgements against you–then it will have an impact on the amount of borrowing available to you. Although the severity of the bad credit event and the length of time since it occurred will also be taken into account.
Your chances of a good mortgage deal with a more favourable level of interest will be greatly enhanced by a clean credit record and a good-sized deposit to put down.