Mortgages for Freelancers

High-street lenders often aren’t especially well-equipped to deal with freelancers. While their mortgage advisors understand standardised “tick-box” applications and have no trouble reading a payslip, they may not know how to interpret complex freelance accounts that can typically include variable income from multiple income streams. This puts freelancers at an immediate disadvantage.

Also, for all it’s true that despite having provided three months’ worth of payslips, an employee can lose their job – and income – two months down the line, there is a lot of focus on whether a freelancer is able to sustain work, and therefore income. Getting final approval for a mortgage can also take longer for a freelancer than for an employee, so aim to build some extra time into the process.

In the same way an employed person would have to provide payslips, a freelancer will have to provide business accounts. However, while payslips for the last three months are generally considered sufficient, many lenders will ask to see up to three years’ worth of accounts. Most will want to see at least two, and they must have been prepared by a chartered accountant.

Another difference is that if you have three years’ worth of accounts that show an upward trend, the lender will probably take an average and work with that. If, however, your most recent year showed a drop in earnings – perhaps because you took a break to, for example, undertake some training or care for a dependent – then they may work with the lower figure. This will directly affect how much you can borrow.

Unfortunately, you can’t just take your last year’s income and assume you will be able to borrow a multiple of that. When deciding how much they are prepared to offer, a lender will carry out an affordability assessment. To do this, they will look at both your income and your expenditure and work out what they believe you can afford to repay. Your credit rating will also have an impact on their decision. If you have a poor credit record, it is likely to reduce the amount you can borrow and increase the rate of interest you have to pay for the privilege. With an exemplary credit record, the opposite is likely to be true. You also boost your chances if you have a sizeable deposit to put down.