Entrepreneurs, quick thinkers, and creative contractors have struggled to get approved for mortgages historically but with a little help and the right information, getting a mortgage if you’re self employed doesn’t have to be a headache.
Misinformation and outdated dribble has left a lot of eligible freelance workers doubting that they can get approved but there are niche lenders and even high-street lenders that will consider loans for self-employed people - including those with fluctuating income or income from the SEISS grant.
Data from the ONS looking at March and April 2020, when a nationwide lockdown was in place, showed that the self-employed had been particularly affected by the pandemic.
The self-employed were more likely to have had their household finances and their jobs negatively impacted by coronavirus in a variety of ways, including reduced income and reduced working hours, having to use savings to cover living costs, and being unable to save for the future.
In contrast, despite the unpredictable nature of freelancing, Coronavirus has highlighted the importance of having a form of income that can be earned from home and can easily fit around changing circumstances, childcare, and busy life in general.
But how does being a freelancer and potentially experiencing a reduction in income because of Covid, affect your ability to get a mortgage?
This group contains a wide range of occupations including artists, writers, health associates, designers, sales and marketing professionals, and business and finance associate professionals.
This group has seen a three% increase in the last year and a 35% increase since 2008.
Furthermore, between 2019-2020, the number of freelancers working in healthcare was up 19%, design (+17%), information technology and telecommunications (+8%), sport and fitness (+7%), and business, research, and administration (+7%).
Whatever your freelancing profession, it can be helpful to know that earning an income without being employed won't stop you from getting a mortgage. While the choice of lenders you have to choose from will likely be smaller than that of an employed person, the UK has a range of freelance mortgage lenders.
It’s your circumstances as a whole that affect a lender’s decision to approve you or not, so even if you have ‘affordability issues’ like bad credit, a poor credit score, or fluctuating income because of seasonal work, it doesn’t necessarily mean you won’t get approved. Lenders will take into account -
Getting a mortgage as a freelancer with bad credit
Bad credit refers to a person's history of failing to pay bills on time, and the likelihood that they will fail to make timely payments in the future, so if you have bad credit, lenders can be cautious about lending to you. Some look at how recent the bad credit incident occurred, so recent blips on your credit report can reduce your choice of lenders and subsequently, which rates you have to choose from.
Interest rates are charged at higher rates for mortgages that allow for bad credit incidents but again, that will depend on your circumstances as a whole.
For example, you may have a larger deposit or a high income and this can help to negate the risk of default because some lenders may view that you’re in a financial position that allows you to keep up with your future mortgage repayments.
Paying off or ‘settling’ debt can also help to build a better credit history as it indicates that you’re committed to repaying your financial obligations. Speak to a mortgage broker about your credit report and find out what your next steps might look like.
Even if you have severe credit issues like bankruptcy or an IVA, finding out what you need to do to move forward later down the line, can kickstart the process and get you where you want to be quicker.
However, certain freelance professions naturally have fluctuation in income throughout the year because of seasonality, like builders - who tend to work less in winter during periods of heavy snow or rain.
Some lenders simply won’t have mortgage agreements open to workers with dips in income whereas others take a different approach and look at the average income over the year, rather than as a month-by-month comparison.
Most lenders prefer residential properties built with traditional brick. Essentially, if the property you’re buying is deemed as either too tricky to resell or too expensive to maintain for you, you will likely get declined.
Period properties, high-rise flats, and homes made from non-standard building materials, including those with thatched roofs, can cause difficulties for some freelancers because lenders want to alleviate the risk of loss. If you were suddenly unable to repay your mortgage and all routes of repayment had been exhausted yet unsuccessful, your property could be repossessed to settle your balance.
Some properties, like those mentioned above, can cause lenders problems when it comes to selling and that can mean that some of the mortgage debt could remain outstanding.
Mortgage lenders for freelancers typically require accounts or tax returns, depending on how your freelancing work is structured.
For instance, if you’re a sole trader you’ll require a tax return in the form of an SA302 from the HMRC. If your freelancing work is under a limited company, you’ll need accounts signed off by a qualified accountant.
The SEISS grant provides the self-employed with a taxable grant based on 80% of their average monthly profits to a maximum of £2,500 per month.
While there were close to 5 million self-employed individuals in the UK in 2019, only 3.4 million of them were found to be potentially eligible for the SEISS, leaving 1.6 million, approximately 710,000 directors of limited companies, going without financial support.
Whether you have taken the SEISS grant or experienced a dip in income, a self-employment mortgage broker can look through your circumstances with you and help to find you a solution for a mortgage.
Some lenders prefer their borrowers to have a regular and steady income that doesn’t fluctuate as this indicates a good pattern of stable income, however, there are niche mortgage lenders in the UK that are more equipped to lend under those circumstances.
However, older applicants, in general, can find it hard to find willing lenders because some have maximum age caps for their mortgages whereas others restrict lending for older borrowers if their income is likely to reduce after they retire.
Self-employed mortgage borrowers over 50 aren’t excluded completely, however.
Niche lenders do exist and they have more flexible criteria that may be able to cater for a freelancer, especially one that can prove they have a stable income that’s sufficient enough to cover their mortgage repayments.
RIO (retirement interest-only mortgages), could also be an option available to freelancers approaching retirement as the affordability assessments only require the applicant to prove they can afford the interest and not the capital of the mortgage.
Equity release could also be an option to compare with a broker, because, unlike RIO agreements, these have no monthly repayment whatsoever, as the balance of the loan is paid from the sale of the home upon the death of the last borrower.
Speak to a specialist about getting a mortgage with two types of income, as they can locate the relevant lenders that are more likely to accommodate your circumstances.
This group accounts for 23% of the total solo self-employed population who may each be eligible for a freelancer mortgage. If you’re a tradesman needing a mortgage in 2021/2022, contact a mortgage broker and tell them how many years you’ve been trading, what you earn, and send them a copy of your credit report.
If you would like to get a mortgage in the next year, it might be more beneficial to stay in full-time employment but that’s not always the case, so ask a mortgage broker that specialises in mortgages for self-employed workers.
Misinformation and outdated dribble has left a lot of eligible freelance workers doubting that they can get approved but there are niche lenders and even high-street lenders that will consider loans for self-employed people - including those with fluctuating income or income from the SEISS grant.
Freelancers during Covid-19
- 34% of UK freelancers began their work at the beginning of March when the pandemic hit, proving that the coronavirus made a huge impact on people’s views of this line of work.
- One in seven people (15%) highlighted that they had become self-employed between 2019 and 2020, equating to almost 591,000 individuals.
- A recent Upwork study asked post-COVID freelancers if they would ever consider going back to a traditional 9-5 office job, and 66% of them said no.
- Freelancing appeals to those looking for flexible hours, however between (April-June) 2020, freelancers experienced a 25% drop in their average earnings and a large drop in the demand for work.
- The number of highly skilled female freelancers has increased by 6%.
- The overall solo self-employed population is now 62% male and 38% female.
Freelance workers incomes were affected by the pandemic
While Brexit had been troubling the self-employed sector for several years, no one could have predicted the huge impact that the coronavirus pandemic and associated lockdowns would have on the sector in 2020.Data from the ONS looking at March and April 2020, when a nationwide lockdown was in place, showed that the self-employed had been particularly affected by the pandemic.
The self-employed were more likely to have had their household finances and their jobs negatively impacted by coronavirus in a variety of ways, including reduced income and reduced working hours, having to use savings to cover living costs, and being unable to save for the future.
In contrast, despite the unpredictable nature of freelancing, Coronavirus has highlighted the importance of having a form of income that can be earned from home and can easily fit around changing circumstances, childcare, and busy life in general.
But how does being a freelancer and potentially experiencing a reduction in income because of Covid, affect your ability to get a mortgage?
What is a self-employed freelancer?
Freelancers are a subset of the solo self-employed population who are working in the top three highest skilled occupational categories (SOC1 to SOC3). This includes managers and directors, professionals and associate/technical professionals. In 2020 there were almost 2.2 million freelancers in the UK, up a small one% from 2019. Of these, over 1.9 million stated that freelancing is their main job with a further 239,000 people doing freelancing as a side hustle alongside other employment.What type of freelancers can get a mortgage?
- Graphic designers
- Writers
- Social media marketers
- Email marketers
- SEO freelancers
- Artists
- Dancers
- Hairdressers
- Builders
- Roofers
- Plumbers
This group contains a wide range of occupations including artists, writers, health associates, designers, sales and marketing professionals, and business and finance associate professionals.
This group has seen a three% increase in the last year and a 35% increase since 2008.
Furthermore, between 2019-2020, the number of freelancers working in healthcare was up 19%, design (+17%), information technology and telecommunications (+8%), sport and fitness (+7%), and business, research, and administration (+7%).
Whatever your freelancing profession, it can be helpful to know that earning an income without being employed won't stop you from getting a mortgage. While the choice of lenders you have to choose from will likely be smaller than that of an employed person, the UK has a range of freelance mortgage lenders.
How to get a mortgage as a freelancer or contractor
Each lender has different assessment criteria. While it may be easy to get a mortgage as a freelancer with one lender, it can be difficult with others with tighter lending criteria.It’s your circumstances as a whole that affect a lender’s decision to approve you or not, so even if you have ‘affordability issues’ like bad credit, a poor credit score, or fluctuating income because of seasonal work, it doesn’t necessarily mean you won’t get approved. Lenders will take into account -
- Your credit history and credit score
- Income
- The type of property you’re buying
- How long you’ve traded for
- The size of your deposit
- Age
Getting a mortgage as a freelancer with bad credit
Bad credit refers to a person's history of failing to pay bills on time, and the likelihood that they will fail to make timely payments in the future, so if you have bad credit, lenders can be cautious about lending to you. Some look at how recent the bad credit incident occurred, so recent blips on your credit report can reduce your choice of lenders and subsequently, which rates you have to choose from.
Interest rates are charged at higher rates for mortgages that allow for bad credit incidents but again, that will depend on your circumstances as a whole.
For example, you may have a larger deposit or a high income and this can help to negate the risk of default because some lenders may view that you’re in a financial position that allows you to keep up with your future mortgage repayments.
Paying off or ‘settling’ debt can also help to build a better credit history as it indicates that you’re committed to repaying your financial obligations. Speak to a mortgage broker about your credit report and find out what your next steps might look like.
Even if you have severe credit issues like bankruptcy or an IVA, finding out what you need to do to move forward later down the line, can kickstart the process and get you where you want to be quicker.
Getting a mortgage as a freelancer with fluctuating income
It’s important to show lenders that your income is likely to continue or increase because they’ll want to see that, and outlining the stability of your income is crucial in getting a mortgage as a freelancer.However, certain freelance professions naturally have fluctuation in income throughout the year because of seasonality, like builders - who tend to work less in winter during periods of heavy snow or rain.
Some lenders simply won’t have mortgage agreements open to workers with dips in income whereas others take a different approach and look at the average income over the year, rather than as a month-by-month comparison.
Can I get a freelancer mortgage to buy a house or flat?
Mortgage products vary but usually, the borrower buys a property to live in, rent out or use as business premises. The type of building you’re planning to buy does affect the likelihood of you getting approved and the range of lenders you have to compare.Most lenders prefer residential properties built with traditional brick. Essentially, if the property you’re buying is deemed as either too tricky to resell or too expensive to maintain for you, you will likely get declined.
Period properties, high-rise flats, and homes made from non-standard building materials, including those with thatched roofs, can cause difficulties for some freelancers because lenders want to alleviate the risk of loss. If you were suddenly unable to repay your mortgage and all routes of repayment had been exhausted yet unsuccessful, your property could be repossessed to settle your balance.
Some properties, like those mentioned above, can cause lenders problems when it comes to selling and that can mean that some of the mortgage debt could remain outstanding.
Can a freelancer buy a period property or unique home?
Yes, while it’s less likely you’ll find a cheaper interest rate, it isn’t impossible. Speak to a mortgage broker about your plans to buy a property and they can highlight the lenders in the UK that provide mortgages to buy unique or character properties.Proving your income for a freelancer mortgage
There are differences in the way that self-employed people receive their income, and this will make a difference as to how you prove your income when applying for a mortgage.Mortgage lenders for freelancers typically require accounts or tax returns, depending on how your freelancing work is structured.
For instance, if you’re a sole trader you’ll require a tax return in the form of an SA302 from the HMRC. If your freelancing work is under a limited company, you’ll need accounts signed off by a qualified accountant.
How does the SEISS grant affect a mortgage application?
To improve the situation for the self-employed throughout the pandemic, the government has introduced a range of support measures, including the Self-Employment Income Support Scheme (SEISS), the postponement of changes to IR35 regulations, Bounce Back Loans and deferred VAT and self-assessment tax payments.The SEISS grant provides the self-employed with a taxable grant based on 80% of their average monthly profits to a maximum of £2,500 per month.
While there were close to 5 million self-employed individuals in the UK in 2019, only 3.4 million of them were found to be potentially eligible for the SEISS, leaving 1.6 million, approximately 710,000 directors of limited companies, going without financial support.
Whether you have taken the SEISS grant or experienced a dip in income, a self-employment mortgage broker can look through your circumstances with you and help to find you a solution for a mortgage.
Some lenders prefer their borrowers to have a regular and steady income that doesn’t fluctuate as this indicates a good pattern of stable income, however, there are niche mortgage lenders in the UK that are more equipped to lend under those circumstances.
Freelancer mortgages for older people
10% of self-employed people are aged 65 years or over, compared with just 3% of employees.However, older applicants, in general, can find it hard to find willing lenders because some have maximum age caps for their mortgages whereas others restrict lending for older borrowers if their income is likely to reduce after they retire.
Self-employed mortgage borrowers over 50 aren’t excluded completely, however.
Niche lenders do exist and they have more flexible criteria that may be able to cater for a freelancer, especially one that can prove they have a stable income that’s sufficient enough to cover their mortgage repayments.
RIO (retirement interest-only mortgages), could also be an option available to freelancers approaching retirement as the affordability assessments only require the applicant to prove they can afford the interest and not the capital of the mortgage.
Equity release could also be an option to compare with a broker, because, unlike RIO agreements, these have no monthly repayment whatsoever, as the balance of the loan is paid from the sale of the home upon the death of the last borrower.
Top tips for securing a home loan as a freelance worker
- Try to avoid gaps in your contracts and ideally, keep your income the same amount or higher as you progress through the year.
- Complete three SA302 forms to prove your income as a freelancer, indicating that you’re a safe borrower with the ability to earn.
- Check your credit report to see what mortgage lenders can see when assessing you as a borrower. Don’t panic if there are ‘issues’ on your report because that might not result in an automatic rejection for a mortgage, it depends on your other circumstances and your chosen lender’s criteria.
- Save a larger deposit if you’re in a position to because this can lower your loan-to-value (LTV) so you borrow less and potentially pay less in interest.
- Get advice from a mortgage advisor because they’ll have access to a wide range of mortgages, some of which you may be eligible to apply for.
Freelancer mortgages FAQS
Can I get a mortgage if I’m employed with a part-time freelance income?
If you’re employed and freelance in your spare time, using income from freelance work towards your mortgage isn’t always a straightforward task. Having said that, some lenders do accept a second income on a mortgage application, even if it’s from freelancing.Speak to a specialist about getting a mortgage with two types of income, as they can locate the relevant lenders that are more likely to accommodate your circumstances.
I have a trade - can I get a freelancer mortgage?
The group with the highest number of solo self-employed people includes skilled trades occupations ranging from construction and agriculture to textiles and food preparation.This group accounts for 23% of the total solo self-employed population who may each be eligible for a freelancer mortgage. If you’re a tradesman needing a mortgage in 2021/2022, contact a mortgage broker and tell them how many years you’ve been trading, what you earn, and send them a copy of your credit report.
Should I go freelance or wait for my mortgage to go through?
If you have less than one years’ trading accounts as a freelance worker, it can be tricky to find a lender to approve your mortgage. Having more years’ of trade shows that you can have an ability to get income from your trade and indicates that you can afford your mortgage, based on the income you can prove you’ve earned.If you would like to get a mortgage in the next year, it might be more beneficial to stay in full-time employment but that’s not always the case, so ask a mortgage broker that specialises in mortgages for self-employed workers.
Self Employed Mortgages Expert Article by
Daniel Dawkins
(Mortgage & Protection Specialist)
The Mortgage Hut