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The world of work is changing. Every year, more and more people in the UK choose freelancing and self-employment. Many out of choice, many out of necessity.
Of course, ‘self-employment’ and ‘buying property’ aren’t traditionally compatible goals. For many, the flexibility and independence of working for yourself are offset by the sheer difficulty of buying a home when lenders want you to show a ‘safe’, ‘predictable’ income.
An Online Mortgage Advisor study from 2018 looked into misconceptions amongst the self-employed.
It found that a huge number of entrepreneurs and ‘flexibly-employed’ people don’t even bother applying for financing. Never mind the fact that many of them could get a mortgage if they’d just do a few things differently. One tool you should try out is a Loan To Value Calculator - Loan-to-value is a financial term used to describe the ratio between a loan amount and the value of the property being purchased with the loan. It is usually expressed as a percentage and helps lenders assess the risk associated with a loan.
Want to know what those things are? Keep reading.
Why's it more difficult to get a mortgage as a freelancer, anyway?
It mainly comes down to the natural risk-aversion of mortgage lenders.
Put simply, many lenders tend to see your ‘less-than-predictable’ income stream as a liability. Your earnings may fluctuate, you arguably have less in the way of job security and in the often-paranoid mind of the financial institution, your work could all dry up tomorrow, leaving them out of pocket.
We all know that this is usually not the case - but try telling that to an automated digital system that scores your application based on your credit score and a series of tick-box criteria.
But getting a mortgage might be easier than you think
That said, ‘difficult’ doesn’t mean ‘impossible’.
As we mentioned earlier, there are thousands of freelancers who will never get a mortgage because they simply won’t apply in the first place, or won’t take the necessary steps to tip the odds in their favour.
Don’t be one of those people. Here are 5 things that you can do to increase your chances...
What can you do to increase your odds of getting a mortgage?
1. Find a specialist lender
High-street lenders are certainly an option for many, but there’s also a huge world of lesser-known lenders who specialise in financing people with ‘unusual’ incomes.
You won’t find many of these lenders on the high-street, and you won’t even be able to access many of them without the help of a broker.
These are the kind of lenders who finance self-employed and freelance people all the time - they have a much better understanding of your business and a much more flexible approach to financing you.
2. Improve your credit
Along with your income and deposit, your credit history is one of the biggest factors to determine whether you get the offer or not. And, the higher your credit score, the better the rates that lenders will tend to offer.
Check your credit report to see if you have any obvious errors that could be corrected, or any past events that you can start to repair. The three main credit scoring services are Equifax, Experian and TransUnion - each of which allows you to check your credit history for free.
Remember: not all credit events are treated the same - a recent bankruptcy, for example, is more of a barrier than a missed payment from a few years ago. There are lots of proactive steps that you can take to improve your credit and increase your appeal to lenders over time.
3. Save up a larger deposit
The amount you borrow as a percentage of the total property value is known as a ‘loan to value’ (LTV). The lower your LTV, the happier your lender will be with your application.
You can often increase your odds of getting a yes, or improve the rate that the lender offers you by putting down a larger deposit. As such, a bigger deposit could seal the deal, or save you thousands in the long run.
4. Secure repeat business or long-term contracts
You can decrease the perceived uncertainty of your income by locking down an ‘anchor client’, a retainer, or another kind of repeat business. It’s even better if you have a written contract in place that shows just this, and that you can present to a prospective lender.
5. Reduce your personal expenses
A lesser-known fact about mortgage lenders is that they also assess your personal outgoings. And, believe us, they can be meticulous about it. This is called a ‘stress test’ - it’s designed to see if you could still make your monthly mortgage payments, if interest rates rise.
Got a gym membership you don’t really use? Expensive credit card debt you could pay down first? Frequent luxury holidays? If you can cut your monthly outgoings in the months leading up to your application, you’re more likely to sway the lender in your favour.
