There are numerous benefits to being a freelancer, the most obvious one being increased freedom and flexibility in all areas – from where and when you work, to who you work with and what kinds of projects you choose to work on.
As a freelancer, your destiny is in your own hands, and this is the main reason so many people have made the switch and gone out on their own.
But the road less travelled is often precarious, with freelancing bringing its own set of challenges.
When it comes to securing a mortgage, for example, you may discover that you have your work cut out for you.
Why, though? And what, if anything, can you do about it? Let’s take a look.
Is it harder to get a mortgage as a freelancer?
Generally speaking, yes – it can be. From the perspective of a potential lender, freelance income is typically considered to be far more unpredictable than a salaried income. Someone who undertakes freelance work simply can’t provide the same level of certainty or reassurance as someone who is a PAYE employee on a fixed annual salary.
The reality is that not all loans are created equal, and so it’s reasonable to assume that, as a freelancer, you will be judged more harshly than someone in full-time employment.
On top of the fluctuation typical of freelance cash flow (which can be a red flag to mortgage lenders), there are also business expenses to consider on top of your personal costs, and these can further affect your ability to pay back what you owe.
What can freelancers do to help secure a mortgage?
So, where does that leave you? Is it all doom and gloom? Thankfully not, as there are some steps you can take to try and improve your overall attractiveness to potential lenders when you’re getting ready to buy a house as a freelancer.
Put down a bigger deposit
In most cases, the bigger the deposit, the more reliable (and therefore attractive) you’ll appear to a lender.
You’re essentially putting your money where your mouth is and demonstrating your commitment to repaying the loan in full, which of course makes the lender feel better about the whole thing.
It ultimately comes down to your own unique situation and financial circumstances, meaning it’s a good idea to seek advice from a specialist in the field. A mortgage broker or lender will be able to go over your options, and a good accountant will be able to get into more detail about affordability.
Gain experience as a freelancer
As we’ve established, mortgage lenders can be wary of freelance applicants due to the unpredictable nature of freelance work, which can result in missed payments.
It’s smart to try and log at least two to three years’ worth of freelancing financial records before you approach any potential lenders, as this way you’ll have something to point to which demonstrates your reliability.
You’ll still need to show that you have plans for the future, but, more than anything else, historical information serves to reassure lenders that you actually know what you’re doing (no small thing).
Also, you can use the extra time to increase the size of your deposit!
Maintain a good client list
Like the financial records, a good client list will go a long way towards convincing a potential lender that you can be trusted to deliver.
The best way to attract clients is by putting a marketing plan into effect, and this should include such things as an online presence and pitching. If you’re just starting out, you’ll want to start relatively small and build up to taking on more work (and from a wider variety of clients).
One thing to remember is not to put all your eggs in one basket, so to speak. For example, by relying on one big client who could up and leave at any time. At the beginning, you want to focus on baking muffins, not cakes!
Keep good credit and business records
This should really go without saying, but any potential lender will more than likely conduct a credit check on your business, and so it’s a good idea to deal with any outstanding loans in advance.
More generally, you should also ensure your records are in good shape (accurate/up-to-date) and keep an eye on your cash flow.
If you think you might need help with this but you don’t want to hire an accountant or bookkeeper, good bookkeeping software will automate the whole process, meaning you don’t have to rely solely on your own judgment.
It’s also worth noting that if you operate as a sole trader, then legally speaking there’s no difference between you and the business. It makes it even more important that you can show a separation between freelancing finances, and your personal transactions.
Find an accountant
Working with a good accountant can be another marker of stability in the eyes of a mortgage lender. They’ll help you keep your finances in order and minimise mistakes, while an exceptional accountant will also advise you on how to be more tax efficient in the process.
Of course, they can also assist you with a mortgage application, making sure you’re giving yourself the best possible chance.
How much can a freelancer borrow?
Unhelpfully, there’s no cut and dried answer to this, as borrowing is based on an individual’s annual income and unique circumstances. This means the amount you can borrow is different for everyone.
Generally speaking, though, the higher your annual income, the more you will be able to borrow, and an accountant can help you get the best deal possible.
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