How can a mortgage broker help a Contractor or Freelancer get the best mortgage possible?

The first myth to expel is the one that supposes that there is such a thing as the ‘self-employed mortgage’. At the time of writing, at least, this is simply not the case. The self-employed might think that they are discriminated against because of their mode of employment, but this isn’t the case.

What is the case though, is the difficulty many contractors, freelancers and the self-employed find proving their income and illustrating it is predictable and stable.

There are hundreds of different mortgage products on the market in the UK and each one has a slightly different set of terms and requirements. Some are offered over 10 years, some 30. Many might be available to all, some to first-time buyers or the buyers of new homes. One might require the borrower earns 33% of the sum borrowed, another 25% or less. It’s a complicated market and making a mistake can prove costly to the ill-informed freelancer.

In simple terms, you will need to establish a few basic points before you start your search for a mortgage lender that will lend to you. But before you start, you need to establish whether you are in fact, self-employed. You see, being a sole trader or freelancer is likely to be considered to be self-employed whereas being a shareholder and Director of a company might not be considered such. It will depend on the lender and how they view things.

Once you have established that you are self-employed, you need to concentrate on proving the things a lender will need to know. This will largely revolve around how much you can prove you earn and how reliable is that income stream. Many freelancers and self-employed people will know that they might actually have a more predictable income stream as they are less likely to be just one month’s paycheck away from bouncing cheques, but most lenders don’t think that way.

The days of the self-certified mortgage (or ‘liar loans’ as they were pithily christened by the media) are long gone. Now you will need to prove what you earn and how you earn it.

If you have accounts to prove your income for two, or even better, three years this will open up your choice to more lenders. Most lenders will want the accounts to be signed-off by certified or chartered accountants. If you can’t offer this, then the taxman is your next port of call. You’ll need to apply for an SA302 which confirms what income you have reported to the taxman. This is where a major sticking point can come along.

You see, many self-employed will want to be efficient in the way they deal with their income. This might mean leaving profits in a business and not taking it as income. That might be great for the business and for reducing tax liability, but when you are trying to prove your earnings and earning capacity it becomes difficult.

If you can prove the necessary income then you should be able to obtain a mortgage. However, dependent on your status you might find that you will be paying an increased interest rate over the equivalent applicant that is an employee.

As we stated before, your business structure is an important factor. Are you a sole trader, contractor, partner or company director? Sole traders will be treated differently depending on whether their income has increased or decreased in recent years. If your income is increasing, lenders will usually take the average income from the past three years but if it is falling, they usually take the lower figure.

For contractors, the length of a contract is important with one year being preferred. Then, the day rate is usually multiplied by the number of workdays in the year.

Director’s of limited companies are usually assessed using one of two methods. The first is to calculate the applicant’s income based on salary and dividends received from the business. The second is to assess the director’s salary in addition to retained profit in the company. Different lenders will have different methods.

So, as you can see, finding the best mortgage available to you if you are a freelancer or self-employed requires time and experience. At Mortgage Required we specialise in finding the best mortgage offers for our clients. We have access to the ‘whole market’ as independent advisors and will quickly find the best offers available to you.

For more details on how we can help you to be best prepared and move fast in the purchase of your dream home, contact Mortgage Required for a chat on 01628 507477.

Related articles:

• Top Tips to Getting a Mortgage When You Are Self-Employed
• How to Improve your Chances of Getting a Mortgage
• Why Use an Independent Mortgage Broker?