Securing a mortgage can be tricky for everybody. But freelancers often find it harder than most; our recent research showed that 38% of self-employed people who are interested in getting a mortgage are concerned that they’ll never be accepted because they work independently.
The mortgage market review came into force last year, making lending criteria much tougher. A year on, many freelancers are realising the effect of these changes and are rushing to apply before a potential interest rate rise in 2016. However, many are finding their applications have been unexpectedly declined because of the tighter rules.
Our research also shows how almost two-thirds of self-employed people believe they are required to “jump through more hoops” than traditional employees, particularly if they are new freelancers, and a similar number think lenders don’t understand their situation.
We represent 68,000 people who work for themselves and we’re calling for a new focus on the lending culture in the UK to accommodate different ways of working. The government, aware of these concerns, has included mortgages in the scope of its review of self-employment.
Andrew Montlake, director at mortgage broker Coreco , says self-employed people often struggle because there is no one-size-fits-all approach to mortgage applications, even if a lender is sympathetic to the nature of their income.
He says: “Although things are improving slowly, many self-employed borrowers still suffer the same response from high street lenders: either you tick all of their endless boxes or they’re not interested. What’s more, many frontline staff just don’t know how to interpret a set of accounts.
“The good news is that there are lenders who do understand how a self-employed person works, but even then there are a myriad of different interpretations.”
Montlake adds that some lenders will want to see a full two or three years of accounts, while others will work off self-assessment forms, an accountant’s certificate or even just one year’s trading. He says: “There is also a difference between lenders in what income they will then take into account, with some looking at salary and dividends, while others look at operating profit and take retained profits into account.”
Fortunately if you’re a freelancer, there are already plenty of things you can do to boost your credibility and maximise your chances of being accepted. Here are our top tips:
Provide the best deposit amount you can
The 100% mortgage, where the homebuyer doesn’t have to put up a deposit, is increasingly a thing of the past for the employed and the self-employed alike. Putting down a decent deposit means better borrowing rates on top of the increased likelihood of acceptance. If you can, increase the deposit amount to reach the highest band possible – if, for example, you have an 18% deposit and there’s a way you can push it to 20% that will work in your favour.
Hire a chartered accountant to keep your finances up-to-date
When it comes to proving your income by providing at least two years of accounts, the most reliable way of doing this will be to get a chartered accountant to put them together for you. Make sure that they’re fully certified and specialise in working with the self-employed. You need to personally know the accounts inside out, too, so that you can explain any blips if you need to.
Consider whether you need to be the lead applicant
Is your partner’s income higher than yours? Is her or she in full-time employment? If so, it may help your chances if your partner takes the lead on the application.
Build your credit rating and pay off any debts
The no-brainer, but it’s the big one; a poor credit history equals poor chances on a mortgage application. If you run your own limited company pay your bills on time and stay within your credit limits to show that you’re a responsible borrower.
Find an independent mortgage broker
The best kind of broker for you will be both independent and a specialist in securing good deals for the self-employed. They’ll know which lenders are likely to be more open to independent professionals, which ones may take less than two years of accounts, and where you can get the best rate. You could also read reviews of the various lenders to find out about others’ experiences.
Chris Bryce is chief executive of the Association of Independent Professionals and the Self-Employed.
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