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Freelance mortgages – can be a headache, but don’t have to be.
A freelancer mortgage isn’t an mortgage product itself – this actually relates to the way in which lenders will assess your income for a mortgage.
Why should you have a tough time getting a mortgage for going it alone in the world of self-employment?
Your income might not be as easy to prove as an employed individual on a consistent monthly income, but even if you have fluctuating income, you may find that there’s more money to be made as a freelancer.
In this guide we’ll discuss how you can get a mortgage as a freelancer, including some tips and some things to watch out for.
Freelancing comes under the umbrella of self-employment.
Freelancing isn’t a legal self-employment structure, such as a limited company or sole trader, but it has become a commonly used term, particularly in certain industries such as creatives, marketing & professionals.
In fact, as a freelancer you can operate as a sole trader or via your own limited company.
Freelancers will typically work with multiple companies at any one time and work from their own premises or work from home.
Many freelancers work on a daily rate, so it can quite commonly be confused with contracting.
Some daily rate contractors can access different income assessment from a mortgage perspective, which can work out as a great advantage.
Daily rate freelancers may also be able to take advantage of this, depending on contracting history, gaps between contracts and various other factors.
Contractors will typically work on longer contract with one client at a time. Freelancers will typically work on shorter contracts with different clients at any one time.
It’s certainly possible, although it’s not so much a walk in the park.
If you’re looking to secure a freelance mortgage on your own or with an adviser who isn’t well-versed in self-employed mortgages, it may be a struggle.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
As freelancers come under the ‘self-employed’ umbrella, many lenders will want to assess the income showing on your tax returns.
If you charge an hourly or daily rate for your work, particularly if you have fixed contracts in place with one or more companies, lenders may be able to use your daily rate for affordability purposes, allowing you to potentially borrow more.
This will depend. Not only on the level of income you have, but also the way you’re paid.
Some freelancers will have a standard daily rate and work on fixed contracts. Others might price jobs as and when they pop up and invoice for the work once complete.
The level of income is of course a large factor here – it’s worth having a look at our dedicated page on how much you can borrow to get a rough indication.
The correct answer, but not the answer you want to hear, is that it depends.
Many lenders will want to see 3 years’ freelance trading history with 2+ years’ proof of income.
Other lenders might consider a much shorter trading period, as low as 3 months!
Generally speaking, the shorter freelance trading history you have, the more lenders will want to know what your previous experience has been.
For example, they might want evidence of a number of years working in the same field in an employed role previously.
Generally, you’ll need a minimum of a 5% deposit.
However, some lenders may have higher minimum deposit requirements, depending on your overall circumstances (for example your credit history).
A higher deposit typically results in more lenders and lower rates becoming available.
Yes, although some lenders aren’t keen on this.
If you are working on multiple contracts at once, lenders will generally want to be comfortable with the total amount of hours worked and whether this is sustainable.
Gaps between contracts is one of the key areas that lenders will be looking at for freelance mortgages.
In an ideal world, you’d have no gaps between your contracts.
In reality, that may not be the case.
If you do have gaps between contracts, it’s important to discuss the reasoning with your mortgage adviser.
In many instances this may simply be due to taking a holiday (and rightly so!).
On the other hand, if there was a particular period where you were unable to gain a contract extension or replacement contract, lenders may ask why.
Understandably, Covid has had an impact on many self-employed individuals.
In response to this, the Government introduced the Self-Employed Income Support Scheme (SEISS). This provided a taxable grant to eligible applicants up to 80% of monthly profits (up to £2,500 per month).
It’s important to disclose this to your mortgage adviser to ensure that this is accounted for when researching the most suitable mortgage option for you.
SEISS grants can have an impact on your application, particularly if the lender requires you to deduct this income from your profits.
We focus on building long-lasting relationships with clients.
We therefore charge a reduced fee for our existing client remortgages.
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