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Self-employed? 5 expert tips to help get a mortgage

Self-employed and want to get on the property ladder? Here are 5 expert tips to get closer to buying your own home.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Buying a property is a magical feeling. But these days it can be harder than ever for freelancers to become homeowners. Getting paid on time can be tricky, there's no guarantee of work, and long-term loans like mortgages can be hard to get.

The pandemic certainly hasn't made things any easier either. Generally lenders have upped the amount of money that applicants need for a deposit.

As a result, nearly a quarter of freelance applicants have now packed in their way of working, and got an office job, just to secure a property. So, what's a freelancer to do?

I spoke to expert mortgage adviser Lee Rhodes, founder of Rhodes Advisory Services LLP, to see how today's self-employed could get a foot on the property ladder.

Here are five essential tips.

This article isn't personal advice. If you're at all unsure, ask for financial advice.

Tip 1: Plan in advance and get your accounts ready

In these tough times, lenders look for reassurance that freelancers will be able to continue making payments. "They're especially looking at businesses' sustainability during the past lockdown and since we have come out of lockdown", Rhodes said.

Generally, lenders need a minimum of two completed years of trading and tax documents from freelancers. And as anyone with a small business will know, pulling this information together can take a while.

"Affordability is generally based on the last 2 years' trading profits and lenders want to see those numbers are still relevant. It is important that you can evidence that levels of business are back to pre-COVID-19 levels".

Freelancers might also need to give more information about the nature of their business. This is not a job you'd want to rush. "Make sure your tax payments are up to date and your tax returns are submitted on time". Getting organised is an important way to prepare for mortgage applications.

Tip 2: Consider what your time is worth

The amount of work you'll need to do is significant, and frankly, doing it yourself might not be worth your while.

One thing that most freelancers will know off the top of their heads is their hourly rate. A quick calculation could reveal it might be better to outsource the tedious parts of the process to an expert adviser.

Mortgage advisers can probably do a better job, in a fraction of the time. It might just help keep your bank account, time and general sanity in check over the process.

Tip 3: Don't just chase the rates, find the best lender for your needs

When it comes to loan applications, there are a few more hurdles to jump over if you're a freelancer. And finding a lender which caters to these circumstances is not always the one with the cheapest rates.

According to Rhodes, "Every lender has different criteria, affordability and underwriting". So, finding the right one for you is important. This could mean breaking away from your current bank or building society.

While it might be tempting to simply apply to the lender with the cheapest interest rate, would-be buyers should shop around and broaden their search. "Of course you want to pay the lowest possible rate, however if the lowest one being advertised online or in adverts isn't available to you because you don't fit the criteria, then it's not the best rate available to you".

Tip 4: Boost your credit file

Having the best possible credit file is important when applying for a mortgage, and not just for freelancers. "Know your credit files, there are 3 main Credit Reference Agencies in the UK and it is important that you (and your broker) know what data they hold on you and are sharing with lenders".

Luckily, there are some simple things you can do to ramp-up your credit-worthiness.

One tip is to make sure you're registered to vote, and your current address is updated for bills and statements. "Make sure you are on the Electoral Roll where you are living. And that all your addresses have been updated with banks, providers, and utilities".

In the UK, it's estimated that over 9 million of us aren't registered to vote with a current address. When it comes to updating our addresses, lots are missing out on benefits too. It's estimated that around £20 billion is lost in unclaimed pensions due to outdated addresses. Following this simple step could boost your income as well as your credit-worthiness.

Tip 5: Freelance for at least one year before you apply

When you freelance, you become your own business. And because there's no guarantee that you'll get work and a steady income, lenders usually want to see that you've got a bit of history under your belt.

They'll be looking to see that you can sustain an income throughout the year and be able to afford your monthly payments. This is why you'll normally need two full years of freelancing, before lenders will consider you.

"A small number of lenders will consider an application with a minimum of one-year self-employment with accounts and tax returns finalised and submitted, the majority of lenders would require two years as a minimum".

If you're fairly new to freelancing with around one year's experience, you should also be able to prove that you're not a newbie to the industry you're in. "Experience in the same line of work or industry on a previously employed basis is essential", Rhodes said. You'll probably need to brush off the old CV and remember to include your previous salaries too.

Despite the challenges ahead, freelancers shouldn't feel put off. There's lots you can do to get ahead and make sure you're in the best position possible to buy your own home.

Hannah Duncan is an investment writer, and founder of Hannah Duncan Investment Content, with years of experience producing content for global leaders in finance and retail.

Boost your deposit with Hargreaves Lansdown

Lots of people choose to save with the same bank they have their current account with. But big high street banks pay some of the lowest savings rates – lots currently offer just 0.01% (AER/Gross*) on instant access accounts.

Get a helping hand towards your deposit with Active Savings. Active Savings lets you pick and mix savings products from a range of banks and building societies all through one online account. You'll get a better rate on an easy access account.

And depending on when you're looking to buy your property, you could lock some of your money away in a fixed term product for an even better rate. Fixed rate products typically pay a higher rate than easy access products, however you won't usually be able to withdraw your money until the term ends.

The best rates on Active Savings

Easy access

Up to
0.35% | 0.35%
(AER | Gross)

Up to 1 year

Up to
1.01% | 1.01%
(AER | Gross)

Up to 2 years

Up to
1.12% | 1.12%
(AER | Gross)

Up to 3 years

Up to
1.28% | 1.28%
(AER | Gross)

Easy access

Up to
0.35% | 0.35%
(AER | Gross)

Up to 1 year

Up to
1.01% | 1.01%
(AER | Gross)

Up to 3 years

Up to
1.28% | 1.28%
(AER | Gross)

Find out more

Please note the products above are some of our most popular, but more are available. Click the link above to see our full range. Products can be added or withdrawn at any time. Minimum deposit requirements apply to individual products. Easy access products pay a variable rate and fixed term products pay a fixed rate.

AER (Annual Equivalent Rate) shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products. Once you have opened a fixed term product the rate won't change, but rates on easy access products can vary.

Gross means the rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

A Lifetime ISA (LISA) could also give you a welcome boost. It lets you save in cash or invest in the stock market for your first home or later life.

You can open one if you're between 18 and 39 years old and put in up to £4,000 each tax year before age 50. And as with other ISAs your money can grow free from UK tax.

The biggest benefit is an extra 25% from the government, up to £1,000 a year. But there are a few risks you should be aware of. You must wait 12 months from the first payment before you can use a LISA for an eligible house purchase without incurring a withdrawal charge. Any withdrawals made before the age of 60, which aren't used towards the purchase of a first home, will normally be subject to a withdrawal charge, so you could get back less than you put in. This charge is 25% (or 20% if the withdrawal is made between 6 March 2020 and 5 April 2021).

Investments should be held for the long term. If you'll need the money in the next 5 years you should keep it as cash and avoid investing it into the stock market as investment values can fall as well as rise in value and you may not get back what you invest.

Tax rules can change, and their benefits depend on your circumstances.

More on the HL LISA

High street banks offer instant access accounts which offer immediate access to your money. Active Savings offers easy access and withdrawals typically take one working day.

*AER (Annual Equivalent Rate) - AER shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products.

Gross - The interest rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

Expected profit rate (EPR): Islamic banks offer an expected profit rate rather than interest on their savings products in order to comply with Sharia banking principles.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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