Mortgages for Freelancers
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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.Read More
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
Mortgages for Freelancers
You might see the term ‘freelancer mortgage’ or ‘mortgage for freelancers’ banded around, but in truth there are no such specialist products (just specialist lenders). All mortgages are invariably available to all types of workers, and the challenge is to show a verifiable annual income and an acceptable level of creditworthiness in order to get accepted, whatever your employment status.
Many freelancers often enjoy the stability of a fixed-rate mortgage that enables them to budget around a constant monthly payment, while others benefit from a flexible mortgage that allows them to overpay when they are having a particularly good year, or take a payment holiday when they need to.
An offset mortgage can also work well for freelancers, where the mortgage is linked to a savings account you might have with the same lender. The amount of savings will count in your favour against the mortgage debt when calculating interest–if you have a mortgage of £150,000, and savings of £15,000, then you would pay interest on only £135,000. As freelancers also set money aside for tax each month, often into the same savings account, you can also benefit there, too.
How do I prove my income?
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? 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.
Mortgage Advice For Freelancers
At The Mortgage Centres, we specialise in mortgages for all kinds of niche-market applicants and people of every kind of employment status–including freelancers. As unlimited brokers, we have access to the whole of the UK market, not just a set range of products–including exclusive offers from specialist lenders you won’t find advertised on the high street–meaning we are best-placed to recommend the most suitable freelance mortgage deal for you.
To get an assessment of your current circumstances and a good idea of your options going forward, please Get in Touch with our team today to arrange a free, no-obligation discussion.