Can I Get a Mortgage if I’m Freelance?
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Can I Get a Mortgage if I’m Freelance? (Part 1)
Paul talks to us about how the mortgage process works if you are a freelancer. Episode one of two, recorded in June 2024.
What is a self-employed freelancer?
The definition of a freelancer is someone who’s self-employed and not committed to a particular long-term employer. It’s someone who would do ad hoc work on a very flexible basis, with no long term commitment.
You might think that’s the same as a lot of self-employed people, but freelancing tends to apply to certain professions such as a photographer or a content writer. It’s someone that does things for a particular employer for a short period of time and on a very flexible basis.
Can you get a mortgage as a freelancer? How hard is it to do this?
Yes, you absolutely can get a mortgage as a freelancer. How hard it is really depends on the setup and the circumstances for that particular individual.
In some instances, you could find it easier than an employed person to get a mortgage, or you could really struggle. The devil’s in the detail when it comes to evidencing your income and securing a mortgage. It’s going to be on a case-by-case basis.
What types of mortgages can I get if I’m a freelancer?
On a conventional level, you can get all the types of mortgages you can think of – things like residential, Buy to Let, limited company commercial mortgages, etcetera.
But there are always going to be particular schemes that are only available to employed applicants. We just need to avoid those little schemes that certain lenders offer, like the Helping Hand Scheme from Nationwide, which provides enhanced affordability.
The borrowing is going to be a little bit more with the Helping Hand product – but a freelancer is not able to apply for those sorts of schemes. But on a conventional mortgage level, you’re all set, you’re good to go.
How do I know if I’m classed as a freelancer? How long do you have to be a freelancer before getting a mortgage?
You’re probably going to know if you’re a freelancer, but generally speaking, you’re going to be self-employed and doing things on a short-term basis. You’re not going to be tied down to one employer and you’re getting paid by multiple different people.
Usually, freelancers are set up on a sole trader basis. Sometimes they might be limited, or in a partnership. But generally, nine times out of 10, you’re going to be a sole trader.
If that’s the case, you need to have been trading for at least 12 months to secure conventional mortgages. Once you’ve hit that 12-month mark, start discussing your circumstances with a broker.
So don’t make the mistake of thinking that because you’re self-employed, you’re going to need three years’ books behind you. As soon as you’re at the 12-month point, sit down with us and go through your situation.
The worst case scenario might be a six-month roadmap towards getting a mortgage, but you’re eligible from the point where you’ve been trading for 12 months.
How much can I borrow on a mortgage as a freelancer?
The maximum loan amount you can take is going to be assessed the same way as always. Each lender will differ in how they find your annual income figure to enter into their calculator.
For example, some will use your latest year’s figures, some will use an average of the last two, some will use an average of the last three. Once they have that figure, they’re going to then apply a multiple to that.
Again, with some it will be four, with others it will be 4.5 or 4.75 times. It will all depend on the lender you go to. Lastly, they’re going to factor in your background living costs and other commitments. So ultimately the loan amount is likely to vary by quite a large margin.
In some instances, especially with freelancers, contractors and the self-employed, we can see a difference of as much as £200,000 between the most generous and the least generous lender. It’s very important to assess a whole of market approach when you’re looking at affordability for people who are self-employed.
How do lenders assess mortgages for freelancers? What documents do I need to have ready?
They’re going to be looking for that income to put into the calculator. The evidence you’re going to need to produce as a freelancer is generally going to be your tax calculations – what you’ve submitted to HMRC as your earned income over that tax period from April to April.
You’ve taken away all the costs to your business so we’re left with the profit from self-employment. That’s the figure lenders enter into the calculator. To evidence that, you’re going to need SA302s, which are also known as tax calculations or tax computations, depending on where you get them from. That goes hand in hand with a corresponding tax year overview document.
You’re also going to need bank statements to show your personal income and outgoings, and some identification as well. We need a passport or driving licence, some address proof, and potentially proof of where your deposit is coming from.
If it’s tied up in your house, that’s fine. If it’s cash or a gift, you’re going to need to display that.
How much deposit will I need for a mortgage if I’m freelance?
Most conventional mortgages start from a 5% deposit. If you can then borrow the remaining 95% on a mortgage based on your affordability, you’ve got 100% of the purchase price. Being freelance is not going to take away those 5% deposit options.
Going one step further, there is now a ‘1% mortgage’ that’s available. It’s in fact a £5,000 deposit mortgage, and you can buy up to a £500,000 property with that – which is 1%. Obviously, if you’re buying a £200,000 property with that £5,000 deposit, it’s more than 1%. But if you can afford that based on your income situation, that’s a scheme that might work for you [podcast recorded in June 2024].
It comes with lots of different criteria, and we’ll probably do a separate podcast about that at some point. But just because you’re a freelancer, you don’t have to stump up 10%, 15% or 20% deposits. Higher deposits come with other reasons behind them, things like credit situations or affordability.
Can I get a mortgage if I’m employed with a part-time or fluctuating income?
Yes. Realistically, we can use any income that you can evidence. If you’re part-time or your income is fluctuating, that’s not a problem. As long as you’ve submitted a set of accounts to HMRC with a figure on it, there’s a good chance we can use it to apply for a mortgage.
A lot of the time there is a secondary income to throw in – perhaps your partner’s earnings, or you might be employed and do a bit of freelance at weekends, like a wedding photographer. If you’ve got an income that’s been submitted to HMRC and you pay tax on that income, it can go into the calculator.
A lot of things people do are seasonal, like that wedding photographer. But if you’ve got income that’s going to HMRC, it doesn’t matter if it’s fluctuating. You’re going to be able to get a mortgage, subject to everything else stacking up.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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Can I get a mortgage if I’m freelance? (Part 2)
Paul is back to continue the conversation on mortgages for freelancers. Episode two of two, recorded in July 2024.
Are mortgages for freelancers more expensive?
As a rule, no. A freelancer could technically obtain almost all the same rates as someone who is employed. But depending on their particular income situation, there could be scenarios where they need to approach a specialist lender. In those cases, the rates are likely to be higher than on the high street.
That could be the case for a freelancer or the self-employed in general if you’re paid by an umbrella company, or you changed your employment set-up within the past year.
Let’s say you went from being a sole trader to a limited company, or from employed to being a freelancer. That could result in you needing a slightly more expensive lender. Or, if you had a small amount of trading history or changed industry and you’ve now only got six months worth of trading as a freelancer, you might need a more expensive lender.
But other than that, minus all of those additional complications, you should have access to exactly the same rates as anyone else.
What do I need to do to apply for a mortgage as a freelancer?
You’re going to need the same things as everyone else: proof of name and address, your last three months’ personal bank statements and your credit report. Those will be assessed by your broker to make sure we place you with the correct lender for your credit status.
You’re going to need some additional things as well. Your income proof needs to be solid. If you’re paid as a sole trader, you’re going to have to have SA302s, also known as tax calculations. These go hand in hand with tax year overview documents, which are produced by HMRC once you submit your income.
If you’ve got a limited company set up as a freelancer, you’re going to need company accounts and company bank statements as well. If you’re on a contract as a freelancer, having copies of that to hand will help – it may be requested by the underwriter.
Can I get a Buy to Let mortgage as a freelancer?
Yes – you can actually get a Buy to Let mortgage with no income at all. The affordability for those mortgages is predominantly driven by the rental income that the property will achieve.
The biggest barrier to a Buy to Let mortgage, rather than income or employment type, is actually the deposit. Typically, a lender is going to ask for around 25% for a Buy to Let deposit.
If you’ve got that and you’re looking to invest in property, then don’t worry about what type of employment you’re in. Have a chat with a broker and we’ll discuss the options with you.
Can I get a mortgage as a freelancer if I have bad credit?
People often think that bad credit is a deal breaker. But there are three main factors a broker should assess before they look to place your case. One of them is credit score. If your credit is poor, you’re going to be left with subprime lenders – which you’re not likely to find on the high street and are probably more expensive.
Next is affordability. What will each lender lend to you as a maximum loan based on your income situation and your affordability? That’s going to potentially then shrink that pool of lenders again.
Finally, it’s the criteria. Which lenders will lend to you based on your particular circumstances around your employment contract, your deposit amount, the property type you’re looking at and things like that. You’re then going left with a shortlist of lenders that it all fits with.
Then it’s recommendation time, where we explain which one of those lenders is best suited to your situation. It’s generally going to come down to price, features and benefits at that stage.
Can I get a joint mortgage as a freelancer?
Yes, you can. Similar to the last question, a broker will go through the same process, whether it’s one or two applicants – credit score, affordability, criteria, and then recommendation.
A joint applicant can actually benefit someone with a less than perfect credit score or a really complex income situation, assuming that their credit score is better and their income situation isn’t more complicated.
Likewise, if those things aren’t the case, it can actually hinder you. It really just depends on what they’re bringing to the table. Again, it’s something you’d go through with your broker and decide how best to proceed.
How can I boost my chances of getting a mortgage as a freelancer?
It’s the same as for anyone else. The bigger the deposit, the better, and the better your credit score, the easier time you’re going to have in general.
In terms of being a freelancer, keep up to date documentation on your income, your pay, your tax and make sure it’s paid on time. Try your best to make your income as consistent as possible.
Obviously, that’s easier said than done, depending on how seasonal your work might be. But consistency does make mortgage applications a lot easier. If you can do that, it’s a good place to start.
Should I go freelance or wait for my mortgage to go through?
It’s difficult without knowing the specifics. But if you’re in the midst of an application right now, the advice would often be to wait.
If you have a mortgage right now or you want one in the near future and you’re considering changing any employment type, whether that be from employed to self-employed or freelance, discuss that with a broker. Break down exactly what it is that you’re looking to do and when.
We’ll explore how your choices would impact your borrowing potential going forward. Sometimes, very small tweaks to your intentions could be the difference between it being a deal breaker or not.
A broker might suggest waiting until your fixed rate is coming to an end, or tying in with other different things to make it easier around your application date.
What else do we need to know about getting a mortgage as a freelancer?
You can see that obviously it’s quite layered when deciding on where to place business based on your specific circumstances. Having a chat at the earliest stage and breaking those things down will help a broker put all the pieces together and check you’re making the right choices at the right time.
It gives you the best chance of getting the mortgage without having a massive headache in the process. Sit down and just thrash that detail out so you know where you stand with everything. That would be my advice.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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