Everything You Need To Know About Getting A Mortgage As A Freelancer
It’s easy to assume it’s near impossible to get a mortgage as a freelancer. However, it can be done.
Andrew Montlake has been in the mortgage industry for 26 years and is the Managing Director of Coreco Mortgages.
We asked Andrew the burning questions about getting a mortgage as a freelancer to put your mind at ease.
What are the main things for freelancers to consider with regards to getting a mortgage in the future?
Have your accounts in order and start talking to your accountant and mortgage advisor as early as possible to work out what you’re going to need to show income-wise to get the mortgage you want.
Lenders typically like to see two to three years. Make sure you’re on the voters roll and that your bank statements and credit score are in order.
What are the key things to think about if you want to get a mortgage soon?
Different lenders look at different things so getting advice is essential. Talk to an advisor about what your situation is and what is out there for you. The sooner you can think about it, the better.
What income can you show that a lender can use?
Do you see any recurring problems?
Not being up to date with your books and not having a properly qualified accountant. Make sure you’re on top of everything, that your bank statements and bank account are in order.
Make sure all your bills are always paid on time.
Is it going to be impossible for me to get a mortgage as a freelancer?
It’s a bit trickier now than it was due to the pandemic and IR35. They’ve massively changed the way lenders look at freelancers and contractors. You might want to consider your future roles and looking at getting six or 12-month fixed-term contracts. They might also look at what sector you work in. If you work with industries like travel and entertainment, you might need to answer more questions.
It’s not true that you have no chance as a freelancer. You might be able to get by with one year’s worth of accounts; some lenders might discount a poor Covid period or say you don’t need to declare government grants.
What if I get turned down?
There are over 100 different lenders. The mainstream high street banks are more likely to go off a tick box list, but specialist or broker-only lenders exist for helping the self-employed. You might have to pay slightly higher rates, but they are still competitive.
If you go to one and get knocked back, don’t be disheartened. You can try another or might be able to get on track for six to 12 months time.
Will it make a difference if you’re Ltd or a sole trader?
It doesn’t make a difference. It’s how your business is going and what income can you show. Talk to your accountant about showing more income in the year you want to take a mortgage.
How many years of accounts will you need?
One minimum, preferably two or three.
What if you pay yourself minimum wage? Do dividends count towards your ‘salary’?
Lenders will take your basic wage and dividends into account. Some might average them over two or three years. Some will look at operating profit, net profit or retained profit.
What are the best banks/deals for the self-employed?
All banks are working towards better products for the self-employed, but most are playing catch up. Interesting lenders like Accord and Clydesdale have always been good for freelancers, and Halifax is good for IT contractors.
There are a whole host of specialist banks that purely get their business through brokers who are better at looking with a blank sheet approach, not just using tick boxes.
At Coreco, we’re very noisy in the industry about getting better products for the self-employed. Freelancers and small businesses are going to be vital to getting the economy back on track.
Freelancers have a better understanding of money, taxes and they have the potential to earn more - we need to support them and lenders need to do more.
