Getting A Mortgage As A Freelancer
The UK’s freelance/self-employed sector has grown steadily, over the past decade. The number of freelancers in the UK has grown by 43%; now more than 2 million people work as freelancers in the UK. Many people decide to become freelancers for the work/life balance, allowing them more time to travel or do things they enjoy outside of work. The financial rewards of freelancing also attract people to this lifestyle as there are opportunities to earn a more money.
The rise in self-employment and freelancing has also led to more lenders getting enquiries from freelancers looking for mortgages. Mortgages for freelancers are not as straightforward as a typical employed client who has a regular income from a basic salary.
Can you get a mortgage as a freelancer? Of course you can, in fact, you can still get a great deal on your mortgage at some of the lowest rates on the market, but you will need to meet certain criteria to be accepted.
To ensure that you have the best chance of getting approved for a mortgage as a freelancer it is a good idea to use a broker that understands both your needs and which lenders will consider lending with your type of income. Our expert mortgage advisors specialise in getting mortgages for self-employed, freelance or contract workers and have years of experience. They know the criteria inside out and will be best suited to get you the best deal and ensure you’re eligible.
How long do you need to be a freelancer to get approved for a mortgage?
If you have just started out freelancing and are looking to apply directly to high street lenders, you may end up getting rejected. Most lenders want accounts covering three years; some will consider less than two years. It is why it is a good idea to speak with a specialist broker that knows this market and the lenders that are most likely to accept your application. Remember having a declined mortgage application on your credit report is going to hinder your next mortgage application, so It is a good idea to use a specialist advisor from the off that knows the lending criteria and will be able to assess your eligibility.
The longer you have been a freelancer, the more you will be able to show potential lenders that you have a stable income, this is key to some lenders if you have over three years of stable income as a freelancer
Getting a mortgage accepted as a self-employed freelancer
Lenders in the UK typically require three years of accounts as proof of your income, some lenders will accept less than this, and our expert advisors will be able to select the appropriate lenders for your needs based on your actual circumstances. If you are a sole trader, this will mainly be proof of your net profit, while if you are a director of a limited company, then lenders will take into account net profits, your salary and any dividends you have received from the limited company.
To get proof of this, you can use the SA302 tax overview from the HMRC
Getting a mortgage on a fixed term contract
If you are on a fixed term contract there are still lenders that will consider your application; they will have questions such as how long is left to run on your contract? Has your contract been renewed in the past? How long have you been doing this type of work?
What lenders are want to understand is how sustainable your current level of income is, this will then allow them to make an informed decision to see if you are eligible for the mortgage amount that you require.
Some lenders are more likely to accept contractors than others and out specialist advisors, help clients with this kind of mortgages on a daily basis and are well placed to give you the best chance with suitable lenders depending on your circumstances
How much can I borrow as a freelancer?
Once your specialist advisor has approached a lender who is happy to consider your application, they will assess your affordability as normal. To establish your income, the underwriters will require proof of income.
For a Sole trader, they will look at the proof of net profits.
For Limited Company Directors, they will look at salary, retained profits and dividends, you will need signed accounts to show the lender.
For contract workers, they will look at the contract value, or if you are on a day rate, they will work out an annual salary based on working five days a week for 46 – 48 weeks per year. The information will give them an idea of your yearly income.
Most lenders will offer a standard multiple of between four and five times your yearly income however some may offer six times. Your specialist advisor will be able to work with you to ensure you have the best chance of getting you the sum you require depending on your circumstances. Once the lender has your annual salary, they will assess how much they will lend you using the multiples they offer minus any debt or commitments that you have.
Why is it more difficult for Freelancers to get mortgages?
Since the financial crisis lenders have had to tighten their lending criteria, this means that it has made it more difficult for customers to secure lending if they fall out of the norm, i.e. employed with good credit history. There are however specialist lenders that our brokers work with who offer attractive rates for a variety of circumstances. Most lenders like stability and this usually comes from being employed however being a freelancer shouldn’t stop you from getting a mortgage. Most mortgage brokers are similar to lenders and are looking for clients that are not complex. This is because they are not specialists in freelance or contractor mortgages so they do not have the essential experience to help customers in these circumstances.
Luckily for you, our specialist brokers have the experience and relationships with lenders that offer attractive rates to freelancers and will be able to assess your circumstances and give you the best chance of getting your mortgage offer accepted.
Get in touch today by filling in one of our contact forms, and we will arrange an approved broker to call to discuss your needs and circumstances.