Mortgages for self-employed freelancers

The biggest hurdle for any freelancer is proving their mortgage “affordability” to a lender. The way you get paid, your income structure, dictates how a bank calculates what you can borrow.

Typically, freelancers fall into two camps: sole traders or limited company directors. Here’s what lenders will ask for to prove income from each:

Sole traders: Lenders typically take your net profit from your SA302, which they average over two to three years. By contrast, specialist lenders look to manually underwrite your application. Using this method, most can use just one year’s trading history.

Limited company directors: Most high-street lenders only consider the basic salary directors pay themselves, plus any drawn dividends. Instead, our specialist lenders include retained profits, which can often double your mortgageable income.

You might think ‘specialist lenders’ are banks or building societies you’ve never heard of. A more apt term would be ‘specialist underwriting’. That’s because most lenders have underwriting teams dedicated to non-standard income. The problem is, they’re often inaccessible in-branch or via call centres.

Choosing the right lender is half the battle.

Traditional institutions: These often rely on rigid, automated algorithms that penalise fluctuating or complex incomes. Their criteria pigeonhole all self-employed people alike. In this day and age, they shouldn’t be so blinkered.

Specialist lenders: These institutions use manual underwriting, based on common sense. A human will assess the full context of your business and industry experience rather than just a credit score and SA302.

Beyond standard profit calculations, specialist lenders offer flexible solutions tailored to the “gig economy”. Their underwriters understand that income can fluctuate. They know you won’t have a ‘contract’ like a full-time employee.

And, because they’re human, they understand context. Your work could be seasonal. The industry you’re in might have its own peculiarities. They take all of this into account.

Day rate annualisation: For contractors, lenders often use contract-based underwriting. This method allows them to base affordability on your gross annual contract income, utilising their daily rate, multiplied across the year. This gives contractors access to much more funding to buy their homes.

Complex income streams: You may have varying or multiple income sources, or have recently taken a sabbatical. Manual underwriters can look at the “bigger picture” of your earning potential and assess risk objectively.

There’s much you can do to ensure success, thus avoiding damaging your credit score with multiple rejections. Here’s a basic overview of the documentation you should get ready:

Sole traders: Have your SA302 forms and Tax Year Overviews for the last 2-3 years ready. But don’t worry if you’ve not been trading for 2-3 years. We have specialist lenders who can use only one year’s accounts if you have previous industry experience.

Ltd Co directors: Prepare 2-3 years of full, signed company accounts and business bank statements. Have your latest SA302 to hand, too. This gives them full visibility to you and your business. Again, our lenders can use discretion if you only have one year’s trading accounts.

Contractors: Keep a clear record of your current contract, day rate, and at least 12 months of industry work history. If you have fewer than six weeks left on your contract, you will probably also need a contract extension.