How to get a mortgage as a self-employed freelancer

For many professionals, switching from permanent employment to freelancing is liberating. You gain autonomy, flexibility, and often, a significantly higher income.

But, when it comes to applying for a mortgage, the opposite is true. That newfound freedom can feel like a shackle.

If you’ve walked into a high-street branch, chances are you’ve been met with confusion or a disappointing loan offer. This reaction from ‘traditional’ lenders is not uncommon.

Traditional lenders develop their lending criteria predominantly around 9-to-5 employees. Affordability calculations, therefore, work best for PAYE employees with consistent monthly payslips.

These ‘conventional’ lenders often view you as high risk when your income is either:

• “Dynamic”, as is the norm for workers in the gig economy, or
• Tied up in a limited company payment structure for tax efficiency.

Getting a mortgage as a freelancer is entirely possible. You simply need to know how to present your income and which lenders will give you the best outcome. This guide explains how, so you can feel more confident about navigating the specialist mortgage minefield.

Understanding how lenders view your income

The biggest hurdle for any freelancer is proving “affordability.” Lenders need to know you can meet the monthly repayments of the mortgage you’re applying for. How they calculate this depends on your trading and payment structure. In this guide, we aim to clarify the options available to you.

1. Sole traders (dynamic income)

If you’re a sole trader, your income likely fluctuates. Your market may be seasonal or affected by external factors, like the weather. So, you might have a lucrative spring followed by a quiet summer.

This irregularity may make traditional lending criteria raise unnecessary red flags on your application.

The standard approach:

Most traditional lenders look at your net profit: the figure on your SA302 tax calculation.

The calculation:

They often require two to three years’ trading history. Using those figures, they’ll then typically average your net profit over the last two years. However:

• Be aware: you may have a problem if your most recent year is lower than the previous years. Many high-street lenders will use this lower figure rather than the average. Using that lower figure as a base for their calculation could significantly reduce your borrowing power.

The “dynamic” solution with a specialist lender:

Specialist lenders can be more flexible. Imagine you’ve had a dip in income due to reasons like a new baby or a sabbatical, for example. Your profits will have dropped during that time, but may have since recovered.

A major benefit of using lenders and building societies with flexible self-employed criteria is this. They’re willing to manually underwrite mortgage applications with just one year’s trading accounts. Very few High Street lenders have this flexibility!

A lender using manual underwriting will consider the full context rather than relying on automation. Looking at the bigger picture can give your application a better chance of success than relying solely on algorithms.

2. Limited company directors (steady income)

Higher-earning freelancers typically operate through a limited company to be tax-efficient. You likely pay yourself a small salary (up to the tax-free allowance) and top it up with dividends.

Typically, on the advice of your accountant, you leave the rest of the profit in the business. This strategy, however, is not without its pitfalls:

The high street trap:

• Traditional lenders assess your income based on any salary plus dividends drawn. Their affordability calculation ignores any profit left in the company. This oversight means your “mortgageable income” looks much lower than your actual earnings.

The specialist solution:

• Specialist lenders (and some savvier high-street lending institutions) can assess you on salary + retained profit (or ‘operating profit’). They recognise that the money in your business is yours to draw if you need to. This switch in criteria can often double the amount you can borrow.

High street vs. specialist lenders

Knowing who to apply to is half the battle. But, with so many banks and building societies, the choice can be daunting. In addition, you may have reservations about laying your finances bare before a total stranger face-to-face. Let’s look at the comparison:

The traditional high street lender

You might be tempted to use a high street lender. Especially if it’s a bank or building society you have an account with. But—and this is sad to say—to most banks, you’re just a number. There’s very little loyalty. And, even if you’ve banked with them for years, you’ll still need to pass their mortgage lending criteria.

Few of them have flexible algorithms. And, if they have a specialist department at all, it will be at head office. In the main, frontline staff will try to fit your income into their standard self-employed lending model.

The pros:

• Familiar brand names
• Sometimes slightly lower “headline” rates

The cons:

• Heavily reliant on automated credit scoring (“Computer Says No”)
• They have rigid criteria boxes
• If you don’t fit the standard borrower profile (e.g., you’ve only been trading for one year, or your income is complex), they’ll likely reject you or offer a lower loan amount.

The specialist lender

Specialist lenders often work through intermediaries, such as brokers, who understand their affordability criteria. They’re prepared to use manual underwriting instead of algorithms. That means a human being will assess your application.

Engaging a knowledgeable broker can help you navigate the nuanced application process. It will also ensure that your income and circumstances are presented effectively to these lenders.

The pros:

Specialist lenders can consider:

• Day rate annualisation: taking your daily contract rate and multiplying it to create an annual salary figure (often used for higher-earning contractors, like Oil & Gas and IT contractors, and consultants)
• One year’s accounts: self-employed lending based on just one year of trading if your track record in the industry is strong
• Complex income: varying income streams, retained profits, and recent dips in trading

The cons:

• Inaccessibility: you usually cannot access specialist underwriting teams directly (which is also often the case with traditional high-street lenders)
• Interpretation: you need a specialist broker who talks their language as well as yours

How to prepare your application

To give yourself the best chance of success, start compiling your documentation before you apply. Here’s what you’ll need:

For sole traders:

• SA302 forms: the last two to three years (downloadable from your HMRC online account)
• Tax Year Overviews: to verify that you have paid any due tax
• Bank statements: three to six months of personal and business statements

For limited company directors:

• Signed accounts: the last two to three years of full company accounts, signed off by an authorised accountant
• SA302s: to prove your personal earnings
• Business bank statements: to show cash flow

For contractors (day rate):

• Current contract: showing your day rate, industry and end date
• Contract history: evidence of renewals or previous contracts (usually up to 12 months’ worth) to prove sustainability
• For contractors with less experience ‘contracting’: evidence of work history in your current industry

Find more info about contractor mortgages in our bespoke Mortgages for limited company contractors guide.

The golden rule: don’t rush in blind

Every unsuccessful mortgage application leaves a “footprint” on your credit file. Multiple rejections can:

• Damage your credit score
• Make future borrowing harder
• Deter lenders who’d otherwise have accepted your application
• Increase the eventual interest rate a lender offers you

As a freelancer, your income is bespoke. Your situation is utterly unique. It follows that your mortgage application will be, too.

Instead of hoping for the best with a comparison site, consult a broker who understands self-employment’s nuances. We’ll identify which lenders will view your income/circumstances in the most favourable light. This insight will ensure you get the mortgage—and the home—that your hard graft deserves.