For many workers in the UK, freelancing offers both flexibility and freedom; however, when it comes to securing mortgages, it also poses some unique challenges too.
Freelancers, unlike traditional employees, often face greater scepticism from lenders due to their fluctuating incomes and lack of standard or consistent payslips.
If you’re a freelancer, the good news is that with the right preparation and planning, you can improve your chances of getting a mortgage accepted.
Below, we outline five crucial tips for freelancers looking to successfully navigate the mortgage process.
1. Keep Comprehensive and Organised Financial Records
As a freelancer, one of the most essential steps in preparing for a mortgage application is keeping detailed and organised financial records.
Lenders typically require a minimum of two years of accounts to assess your income stability.
These records should include:
Tax returns: Your filed tax returns serve as a primary document to demonstrate your income, so ensure they are accurate and up to date.
Business accounts: If you manage a business, keep full accounts that clearly outline your income and expenses.
If you find managing your finances challenging, you’re not alone. It could be worthwhile investment to hire a good accountant to help keep your accounts in good order with all the necessary documentation in place.
When the time comes, this will make the application process far simpler and smoother.
2. Work with a Specialised Mortgage Broker
Freelancers often benefit from working with an independent mortgage advisor or broker who understands the nuances of self-employment. Unlike high street lenders who may adopt a more traditional approach to freelancers, a broker, such as Your Mortgage People, can:
Assess your unique financial situation: Taking the time to understand and evaluate your income streams and financial health.
Negotiate with lenders: Approaching multiple lenders on your behalf to find the best deal and help you navigate the application process.
Speak to us today to get started with a whole of market brokerage who can help you understand the nuance of your situation and the steps to getting a mortgage application accepted.
Call us on 01489 346624 or fill out a contact form now.
3. Maintain a Strong Credit Score
A good credit score is essential for anyone applying for a mortgage, and it’s especially important for freelancers because it demonstrates your ability to manage debt responsibly.
The basics of a maintaining a healthy credit score include:
Paying bills on time: This includes credit cards, loans and other financial commitments.
Not overspending on credit cards: Try to use a small percentage of your available credit limit.
4. Understand Your Self-Employment Status
The term “freelancer” encompasses a wide range of employment types, from sole traders to contractors and directors of limited companies.
Understanding your specific status can help you to make your mortgage application successful.
For example:
Sole traders: As part of your application, you might use your net profit projections alongside actual income figures.
Contractors: If your work is based on long-term contracts, you may use the gross value of these contracts to calculate your affordability.
Knowing your status allows you to gather the most relevant and supportive documentation and evidence for your mortgage application, potentially increasing your chances of approval.
5. Time Your Application Wisely and Consider a Larger Deposit
Timing can significantly impact your mortgage application’s success. If you’re new to freelancing and don’t yet have two years of accounts, you may need to wait to build a stronger financial profile.
Alternatively, a higher deposit can lower the loan-to-value ratio, making you a more attractive candidate to lenders. It also may secure better interest rates.
If you’re planning to transition from full-time employment to freelancing, you might want to secure your mortgage before making the switch, as a steady employment history can enhance your application.
6. Know the Difference Between Freelancing and Contracting
While Freelancers and contractors are both technically self-employed workers, they do have some key differences:
Clients: Freelancers often work with many clients at once, while contractors usually have one client at any one time.
Project duration: Freelancers often work on short-term projects, while contractors work on longer and more involved projects.
Some lenders may classify contractors as employed rather than self-employed if they can provide the last 12 months of remittance slips and their most recent contract. This is particularly applicable for those transitioning from a PAYE role in the same industry.
In some cases, a minimum contracting period isn’t needed if you have proof of prior industry experience.
When it’s time to apply for your mortgage application, consider if you’re classify as a freelancer or a contractor.
Finally…
Securing a mortgage as a freelancer may require additional jumping some extra hurdles, but don’t be discouraged because it’s entirely possible with the right approach.
Remember, expert advice is always available too— so don’t hesitate to contact Your Mortgage People to guide you through the process.
