The number of people who are self-employed has jumped dramatically in recent years, from 3.3 million in 2001 to 4.8 million in 2018. Many of these work as freelancers. A freelancer can work in any of a number of fields; it’s a catch-all term that can cover journalists, copywriters, authors, illustrators, trainers, web developers, marketers, PR and virtual assistants … and many more besides. When it comes to getting a mortgage, they ought to have the same options as an employed person earning a similar amount but, unfortunately, lenders tend to view – and treat – them quite differently.
What challenges do freelancers face when looking for a mortgage?
High-street lenders often aren’t especially well-equipped to deal with freelancers. While their mortgage advisors understand standardised “tick-box” applications and have no trouble reading a payslip, 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.
Also, for all it’s true that despite having provided three months’ worth of payslips, an employee can lose their job – and income – two months down the line, there is a lot of focus on whether a freelancer is able to sustain work, and therefore income. Getting final approval for a mortgage can also take longer for a freelancer than for an employee, so aim to build some extra time into the process.
Mortgages for freelancers
There is no such thing as a “self-employed mortgage” or a “freelance mortgage”. Everyone potentially has access to the same deals – the tricky thing 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, or even take a payment holiday, 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, as 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?
In the same way an employed person would have to provide payslips, a freelancer will have to provide business accounts. However, while payslips for the last three months are generally considered sufficient, many lenders will ask to see up to three years’ worth of accounts. Most will want to see at least two, and they must have been prepared by a chartered accountant.
Another difference 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 to, for example, undertake some training or care for a dependent – then they may work with the lower figure. This will directly affect how much you can borrow.
How much can I borrow? And how much will it cost?
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 are prepared to offer, a lender will carry out an affordability assessment. To do this, they will look at both your income and your expenditure and work out what they believe you can afford to repay. Your credit rating will also have an impact on their decision. If you have a poor credit record, it is 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, the opposite is likely to be true. You also boost your chances if you have a sizeable deposit to put down.
How Just Mortgage Brokers can help
The team of experienced brokers at Just Mortgage Brokers understand how freelancers work. They are also independent – they aren’t tied to any one lender and their products, but rather have access to the whole of the UK mortgage market, including specialist deals that aren’t available on the high street. All of this means they are well placed to help you get the best available freelance mortgage deal. Contact us today for free initial information and advice.