Finance 29 June 2017

Mortgage advice for freelancers and contractors: Proving your earning worth

Two-thirds of self-employed workers think traditional employees have an easier route to mortgages

Getting a mortgage can be tricky. So how can you secure one when you’re self-employed? Here Luke Somerset, business development director for Contractor Mortgages Made Easy, shares his insight to give readers essential mortgage advice.

Two in five self-employed people interested in taking out a mortgage are concerned they’ll never get one because they work independently.

Further research carried out by the Association of Independent Professionals and the Self-Employed (IPSE) revealed 63 per cent of micro business owners think the self-employed have to jump through more hoops than “traditional” employees, with it being especially difficult for those new to freelancing.

There can be few experiences in life that are more liberating than being self-employed, however it can make securing finance much tougher. It’s usually when looking for self-employed mortgages that the real difficulty can occur.

However, it is perfectly possible to secure a contractor mortgage if you’re self-employed, but to do so you will most likely need to look at the situation from a lender’s point of view to start with.

Why are lenders reluctant to provide mortgages for self-employed?

Lenders will often require a history of employment and income on which they can be sure of making a low-risk assessment. Those in self-employment are often seen as much more risky propositions to lend to. This is because self-employment covers such a broad scope of industries and sectors.

Additionally, if you have only been in self-employment for a year or so, or have considerable dips in income which you cannot easily explain, then lenders can see you as being too risky to give a mortgage to.

This is especially frustrating given that you know yourself that you can afford the repayments – after all, it’s likely that you’re already paying at least the same to rent.

So, what can you do about this to secure that self-employed mortgage?

Showing you can afford a self-employed mortgage

The biggest hurdle to being granted a mortgage when self-employed is being able to confidently demonstrate to a lender that you can afford the repayments.

The lender will want to see several things, starting with three years’ worth of accounts. Being organised here is crucial, so if you can afford to use a certified or chartered accountant to prepare your figures, then do so, it will be worth the additional cost.

You should also reduce your spending in the months leading up to your application – this can also be helpful in allowing you to afford a larger deposit, another thing that will help you secure that self-employed mortgage.

Ensure you are up to date on any bills and try to ensure your credit rating is as good as it can be. Pay bills on time, pay debts back in full and ensure you’re on the electoral role at your current place of residence.

Consider when professional mortgage advice may be helpful

Using a professional mortgage broker can be a huge help when looking for a self-employed mortgage. There are two distinct advantages in having a broker on hand to guide you through the application, and it can really help you to be approved for a mortgage.

Firstly, if you have only been self-employed for a year and do not have several years of accounts, then some of the high-street mortgage lenders may be off-limits. A professional mortgage broker can help you apply for one of the many lenders that you may not be aware of, as well as advising you about the advantages of each.

Furthermore, a professional mortgage broker will also have an awareness of going market rates for mortgages and will be able to identify better deals for you that you may have a stronger chance of being approved for.

Luke Somerset is business Development Director for Contractor Mortgages Made Easy, a specialist financial advisory firm for contractors and freelancers

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