There are over 2 million freelancers in the UK and if you’re among this sizeable number, you may want to know more about your mortgage chances.
Can you get a mortgage as a freelancer? The answer is ‘yes’ and there are some great mortgage deals out there if you know where to look. However, many mortgage providers have tightened their lending criteria so it can sometimes be tricky for self-employed people to get a mortgage based on their income.
But if you would like to get a mortgage as a freelancer, the team at YesCanDo Money can help you get a great deal. Get in touch with us to learn more and check out the guide below on freelancer mortgages.
Why it can be difficult to get a mortgage for freelancers
There are a number of reasons why it can be difficult to get a mortgage as a freelancer. These include the following.
Some mortgage providers require a bigger deposit
Many lenders tend to have strict rules about lending to freelancers. To offset the risk to themselves, they might require a larger deposit which can be out of reach for some self-employed applicants looking to buy their own home.
Not every lender will require a larger deposit, however, especially for freelancers who have a proven track record of making a consistent income.
Our mortgage advisers know which lenders are more likely to give you a mortgage without a hefty deposit, so if you need a lower deposit mortgage as a freelancer, arrange an appointment with a member of our team to learn more.
Mortgage providers favour stability
It may be difficult to get a mortgage as a freelancer if you have fluctuating freelance income. This is because mortgage providers tend to approve applicants with a consistent income as there is less of a lending risk. This is even the case if your net income is comparably higher than that earned by full-time employed applicants.
This can be frustrating if your work is seasonal and there are times of the year when your income naturally dips. It can also be frustrating if you have short-term contracts with clients and you are forced to look for new work on a regular basis.
Some lenders will reject your application if your freelance income rises and falls throughout the year. But this isn’t the case for all lenders. There are specialist lenders and even some high street lenders who will consider your average income over the year instead of looking at it on a month-by-month basis. If they see that you are earning enough to cover your mortgage payments, they are more likely to accept you for a mortgage.
Proof of Income for Freelancer Mortgages
As a freelancer, it is essential to provide clear proof of income when applying for a mortgage. SA302 forms (tax calculation forms from HMRC), Tax Year Overviews, trading accounts prepared and signed off by an accountant, as well as current bank statements, are all necessary documents that will assist lenders in evaluating your financial capability and make the best decision possible on your application. By having this proof ready beforehand, you can be assured that everything proceeds quickly and smoothly!
Some mortgage brokers are not freelance mortgage experts
Not every broker has experience working with borrowers involved in freelancing work. So, while they may be more than able to support PAYE-employed applicants that can evidence income from their regular employment, they may be less equipped to help those looking to get a mortgage as a freelancer.
As such, they will be less likely to know which mortgage providers can arrange mortgages for freelancers and they won’t know about the differences in lender criteria.
This is not the case with YesCanDo Money. We have arranged hundreds of mortgages for freelancers during our years in business so if you’re looking to get a mortgage as a freelancer, get in touch with us as we will be able to help you.
How long do you need to be a freelancer before you can get a mortgage?
Different lenders have different rules regarding this so while one lender might reject your application if you don’t meet their criteria, there will be others who will be more accepting of your circumstances.
Some lenders will want to see your last 3 years’ accounts, for example, so if you haven’t been trading this long, they might not grant you a mortgage approval.
However, there are lenders that are less restrictive. Some lenders approve freelancer mortgages to applicants who have been trading for 2 years, for example, and it’s possible to find a specialist lender who will approve a mortgage to applicants with a trading history of less than a year.
Mortgage lenders will often want to know what you did previously. If you had a limited company or if you were a sole trader they will look far more favourably at you if it was in the same line of profession you are in now.
To get a mortgage as a freelancer, the key is in knowing which mortgage providers are right for your particular situation. As the team at YesCanDo Money are experts in freelancer mortgages, we can help you get a mortgage with the most suitable lender if you decide to use our FEE-FREE services.
Getting a mortgage you’re a self-employed freelancer
As we have stated, getting a mortgage as a freelancer is possible, so you don’t have to worry about lenders denying you a mortgage because of your self-employed status.
But to get a mortgage as a freelancer, you will need to meet the lender’s criteria.
When assessing your eligibility for a mortgage, lenders will also into account your…
- credit history
- the size of your deposit
- the type of property you want to buy
- age
- income
To improve your chances of getting a mortgage as a freelancer, you need to find the lender that is right for your situation. Some lenders will refuse your application if you have a bad credit score, for example, while others will accept your application regardless of the information on your credit file.
After finding the most suitable lender, you will need to evidence your earnings. You can do this via your SA302, tax year overview, and your trading accounts. With regards to the latter, some lenders will want these to be prepared and signed off by a qualified accountant.
Lenders require other information too, including proof of ID and your recent bank statements to evidence outgoings.
Getting freelancer mortgages on a fixed-term contract
Your chances of mortgage approval can be increased if you’re on a fixed-term contract as your level of income is less likely to dip over a set period.
If you have more than 6 months on your contract or if you have had repeat business with different clients, you will find it less difficult to get a mortgage than a freelancer who doesn’t have fixed-term contracts in place to secure future work.
Calculate how much you can borrow as a freelancer
Once you have found a lender willing to consider your application, your affordability will be assessed during the underwriting process. This is where the mortgage underwriter works out how much you will be eligible to borrow based on your income.
The way the underwriter establishes your income will depend on your self-employed status.
- Sole traders: If you’re a sole trader, the underwriter will use your net profit to calculate your affordability. This will usually be an average of your last 3 years’ earnings, but some lenders will calculate your net profit on your most recent earnings if you don’t have business accounts that span that duration.
- Limited company directors: Most lenders will use your salary and dividends when working out how much you may be eligible to borrow. However, some will base your affordability on your retained profits and this could give you the opportunity to access a higher loan amount. Before applying for a mortgage, you will need a certified accountant to prepare your accounts.
- Contractors: Most lenders will calculate your annual income using the daily rate on your contract. They do this by multiplying the number of days you work each week by the number of working weeks (usually 46-48) to calculate your yearly earnings. However, there are some mortgage providers who will assess your borrowing ability using the overall value of your contracts instead. If you have long-term contracts in place, you may be eligible for higher borrowing amounts.
- Employed workers: If you are employed and working as a freelancer to earn more money on the side, the mortgage underwriter will likely consider both your basic salary and the additional earnings seen on your tax returns when calculating your borrowing ability.
Applying the mortgage lenders affordability calculation is the next step
Mortgage providers calculate affordability in different ways. Some use complex affordability models while others will use simple income multiples when working out what you may be able to borrow.
In terms of the latter, most lenders will assess how much to lend you by calculating 4 or 5 x your annual income but there are a few who will consider a figure based on 6 x your income.
Check the table below to see examples of what you may be able to borrow based on the different calculations used by lenders.
Example: Daily rate = £150 x 5 days x 46 weeks = £34,500 per year
| Income multiple cap | Maximum loan |
|---|---|
| 4x income | £138,000 |
| 5x income | £172,500 |
| 6x income | £207,000 |
Can you get a buy-to-let mortgage as a freelancer?
If you’re interested in getting a mortgage for a buy-to-let property, there are lenders who will be willing to lend to you. Your chances of a successful application will be improved if you have a consistent income and if you meet the lender’s minimum income threshold. If you own your home and already have a portfolio of rental properties, you will further improve your chances of mortgage approval.
This isn’t to say you won’t be ruled out of a buy-to-let mortgage if you have a variable income and you don’t meet the typical income threshold as some specialist lenders have fewer requirements. However, they will still want some assurance that your rental income is going to cover your mortgage payments.
Will bad credit affect a freelancer mortgage application?
If you have a low credit rating, many lenders will be reluctant to give you a mortgage. This is because they may be worried about your ability to repay your mortgage payments, especially if you have a history of going into arrears on other loans. This applies to all mortgage applicants, regardless of employment status, and not only those looking to get a mortgage as a freelancer.
However, there are lenders who may still be able to give you a mortgage despite your credit issues. Your chances of success will depend on the severity of your credit problems and how recent they were.
Joint mortgages with one freelancer and one employed applicant
If you’re looking to get a mortgage with a joint applicant, the amount you’re eligible to borrow may be higher if the lender takes both income sources into account.
Unfortunately, some mortgage lenders don’t take self-employed income into consideration and in these cases, your borrowing ability will solely be based on the full-time employment income and not the money earned from freelancing work.
Again, the key is in knowing which lenders to approach. With the right advice from a mortgage broker such as ourselves, you will be able to access other lenders that accept both freelance and PAYE income when calculating affordability.
Speak to an expert freelance mortgage advisor today
If you’re looking to get a mortgage as a freelancer, get in touch with our specialist advisors. We know which lenders offer freelancers mortgages and can help you prepare your application to improve your mortgage chances.
Our mortgage advice will be tailored to your situation, so whether you’re looking to get on the property ladder alone or via a joint mortgage, or if you’re looking to invest in a buy-to-let property, contact our team and we will make it easier for you to get a mortgage as a freelancer.
Enter your details into the contact form below and we will be in touch to give you further advice about mortgages for freelancers and the application process.
