As soon as I told the mortgage broker I have my own business, I got that long stare followed by silence.
Awkward.
That look of doubt and I could see the thoughts going through his head: 'Here we go again. A so-called ‘freelancer’ with no consistent income.’
Straight away, I know the chance of getting a mortgage with a reasonable interest rate was somewhere between low and zero. Or any mortgage at all!
Of course, mortgage providers and lenders favour applicants working in a permanent job over somebody who’s self-employed or freelancing.
And why wouldn’t they? They want an applicant who can pay the mortgage.
But, things have changed.
There’s been an increase in freelancers setting up their own business, the work available and businesses are hiring freelancers more than ever.
And there are a lot of successful freelancers and many with consistent income out there!
I get that lenders need to know a mortgage will be paid off, but isn’t that why mortgage insurance exists? And such a thing called a ‘mortgage holiday’? Even permanent employees face redundancies, lay-offs and changes to their contracts — much more now than they used to.
Yet, lenders continue to have these pre-conceived ideas that freelancers don’t earn enough, that they’re not in long-term work or have times of no work at all.
But freelancers need and want to buy a home, too!
Which is why lenders need to let go of this old-school way of thinking and assumptions.
But until they do, freelancers and business owners have to dive deep and come up with much more evidence to show that, yes, they can afford and are able to pay off a mortgage.
Here’s what you can prepare to show lenders you can afford a mortgage:
File monthly bank statements
I can’t emphasise this enough. Lenders will want to see records of what you’ve earned going back at least the last 6 months. Keep either PDFs, screenshots and even hard copies of monthly bank statements.
Highlight expenses and income on statements
If you’re really savvy and want to make the lender’s job easier, print off some bank statements. Then, highlight the expenses in one colour and your income in another colour so they can easily pick out income and outgoings. I did this when I was renting and it was clear for them to see. Then there was no way they could argue with it.
Complete your most recent tax return
Boring as it is, a lender won’t care if you earned £40,000 in the last tax year. They’ll want to know what you earned in the last 6 months. Keep a record in the form of a screenshot or PDF (and hard copies if possible)of your tax return for at least the last two years.
Even when renting, I had to complete my tax return straight away, even though I don’t usually do it until mid-way through the year.
Pay off any credit card debts
Borrow some money over Christmas? Plan to pay off any debt as soon as you can. Give yourself enough time to do this, pay realistic amounts you can afford each month. Every time a lender does a credit check, it shows up as a negative so the best thing to do is just pay it off.
Check that credit rating
There are free credit ratings you can get from providers like TransUnion or ClearScore from different providers — you don’t necessarily have to pay for this.
If you want to boost your credit rating, there are ways of doing this. Getting a credit card and paying for your food shopping on it, then paying it back all on one swoop or split in two, when you first get paid.
Get client references
With any employee, lenders will often want to speak to your employer to get some sort of character reference or to confirm your income. With freelancers, it will tend to work the same way. If a lender or agent is quite particular, they’ll ask to speak with one of your clients to confirm what you do and what they pay you.
Find one or two of your regular or long-term clients who are happy to provide this verification for you.
Put money aside for a deposit
Sounds obvious, but the more you can squirrel away towards a deposit each month, the better. Because the more you have as a deposit, the less you’ll need to borrow on a mortgage.
Think about what you can do without for the next 12 months. Could you change your streaming subscription? Change your broadband provider?
Every little bit can help. And if it’s an account like a Help-to-Buy ISA, you’ll get a 20% government top-up for a value of up to £12,000. It can all help.
Lenders need to look beyond and get over the fence of any unconscious bias they might have about freelancers and others who work for themselves. Fair enough, if you’re starting out and don’t have a consistent line of clients and income, that’s fine. Give yourself time to build up on that side.
But there are many very successful freelancers out there — and they all need a home to live in!
For now, there is always going to be more that freelancers must do to reach the gem of owning their own house. Even when doing it with a partner or friend, it can still feel like wading through a sinking ship.
But…it can be done!
With some solid preparation and getting all your stuff in order, the obstacles can be overcome. But lenders also need to be more open to freelancers and sole traders, too and not so quick to reject.
Need a bank or lender that’s more open to business owners and freelancers?
I’ll be providing a guide on freelancer-friendly banks and lenders in the near future.
Are you a freelancer who has managed to get a mortgage accepted? I’d love to hear about your experiences.
