Can I Get A Mortgage If I Am Freelance?

Podcast approved by The Openwork Partnership on 14/06/2024

Can you get a mortgage as a freelancer? How hard is it?

Yes, you can. A freelancer isn’t a term that we use very often in the mortgage industry. I actually think of a journalist when I hear the term freelancer – but it could describe an IT contractor, a teacher or many other things.

It’s usually someone working on fixed-term contracts: short-term, freelancing contracts. It’s not hard to get a mortgage as a freelancer as long as you’ve got the right paperwork.

How do I know if I’m classed as a freelancer? How long do you have to be a freelancer before getting a mortgage?

Freelancing is short-term work. So if you’re a joiner or and you’re self-employed you’re not a freelancer – you’ve got regular work for different people. And if you’re employed, you’re not a freelancer.

A freelancer is somebody going from job to job under different contracts – it could be an IT person working for the civil service on a two year contract, who will then be looking for another contract after that.

In terms of how long you need to be one, it varies with different lenders. There’s lots of specific criteria. But you can work on the assumption that you need to have a two-year contract or have two years’ history in your job role.

You might be a teacher on a fixed term contract or a journalist working for different papers. If you’re a joiner, you’re probably going to be a joiner for life and you’ve got continuous work, while a freelancer usually has a set term, whether that’s six months, 12 months or two years, and you’ll have a contract stating that.

What types of mortgages can I get if I’m a freelancer?

There’s no difference. Everything’s available as long as you can prove your income. The underwriters are looking for longevity. If you’re taking a 25 year mortgage, they want to make sure that that income is going to be sustainable.

If you’re a First Time Buyer, you’ll have access to the same mortgages as a First Time Buyer who’s employed, or a self-employed First Time Buyer who is a joiner or a bricklayer… Any differences are going to come down to your deposit and your individual circumstances, such as credit history.

How much can I borrow and how much deposit do you need for a mortgage as a freelancer? Will I need a large deposit?

This is going to come down to your credit history. Deposits work on 5% increments, so if you only have a 5% deposit to put down, you’re going to need quite a good credit score in the background. We don’t want any missed payments or blips, as a rule. But you don’t necessarily need a large deposit.

Your earnings determine your borrowing, and your credit score determines how small a deposit you could get away with. Like the previous question, there are no real differences for a freelancer. You don’t need a much larger deposit, although there are always going to be variations because everybody’s circumstances are slightly different.

How do lenders assess mortgages for freelancers and what documents do I need to have ready?

Preparation is key. Just because you’ve saved a deposit, it doesn’t always mean you’re ready to go. I’ll often have an appointment with somebody and we’ll put a two-year plan together because they need that preparation time. People often don’t know what they’re going to need, especially if they’re self-employed.

That’s what a freelancer is: self-employed, and with anyone that doesn’t receive a regular, predictable income, lenders want to see a two year track record. They’re also likely to want you to have six months remaining on your current contract. You might also need to provide the previous year’s contract.

You may be working for the same company for years, where you keep getting your contract renewed – and a lender is potentially going to want history of that. They will be delighted with an indication that a company is going to employ you for the next two years, stating how much they will pay.

Does it matter what job I do as a freelancer in getting a mortgage?

Potentially. Depending on what job you do, lenders could work out your income based on your day rate. They could take 46 weeks of that day rate – different lenders can multiply it different ways. So if you’re thinking about getting a mortgage, speak to a broker first. Every job is individual.

A mortgage underwriter will assess a professional footballer very differently, for example, as there’s an age limit to their earnings. I could talk all day about all the different variations. So if you’re a freelancer or a fixed contract worker, make an appointment with us, or just have a telephone conversation with a broker about your current situation and what you’re looking to do.

Your income might move up and down, or perhaps you might have slightly bad credit or you might not have started saving for your deposit. We can give you all sorts of hints and tips to get you ready.

When you do come to buy, you’ll have a deposit and be ready to go. We’ll have a lender in mind that matches your needs. We have CIS contractors, for instance, who pay 20% tax on their wages every two weeks or every month. They’re also assessed in a different way.

A few lenders are really good with that type of income. It’s best to go to a broker rather than your own bank – because that bank might not look favourably at IT contractors or freelancers or your particular job. So get an overview. A lot of people can be put off by their own bank not being able to help – they think that’s the general rule, and it’s not. Every lender is different.

Is a freelancer treated as self-employed?

Usually, but it can vary. As I mentioned, a CIS contractor is a contractor in the construction industry who is self-employed but pays 20% at source. They could claim back at the end of the year if they have overpaid on tax.

Some lenders will assess them as self-employed, some will assess them as employed. A self-employed freelancer will usually get paid gross from the people giving them the contract, and it’s up to them to put a self-assessment tax return in, pay tax and national insurance.

That’s what’s assessed to calculate your mortgage borrowing. You’ll need on average two years’ proof – because that helps cover off your increasing and decreasing income. People on the oil rigs do six weeks on, four weeks off – so they’ve got a lot of income straight away and then nothing for a few weeks. Lender’s look at a whole year’s income as a total, based on what you pay tax on.

If you are a contractor, you may charge a day rate. Certain lenders will use that day rate to calculate what you could borrow. Again, we get into confusing territory with different lenders on how they work it out. But overall, freelancers will as a rule be classed as self-employed.

If you have two years’ history in your industry you won’t go far wrong. Provide the payslips, prove your contracts, have your tax calculations and tax year overviews ready, and you’ll be fine.

Can I get a mortgage if I’m employed with a part-time freelance income?

Absolutely, yes. Perhaps you’re employed with a part-time freelance income on the side. Your main income would be taken at 100% with the majority of lenders and then they’d work out if you needed to also use that part-time freelance income to top up your borrowing. Some lenders will take that at 100%, as well.

If you’re doing 40 hours a week on your first job and 30 hours on your second job, they probably won’t like that. But if it’s realistic, consistent and achievable over the years and won’t burn you out, some lenders will use 100% of both incomes to get your borrowing – if you need it.

Your full-time income might be enough to allow you to borrow what you need for your mortgage. But if you need to top it up with some part-time self-employed income, you could use that too.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Approved by The Openwork Partnership on 14/06/2024