It seems slightly paradoxical that while freelancers frequently earn more than their permanently-employed colleagues, they routinely have issues trying to obtain mortgages. This problem arises when you try to demonstrate to the mortgage provider that you can actually afford it.
Many providers will want to see three years of accounts for your business, in order to ensure you have a consistent income stream. Clearly if you are new to the business, or have changed your limited company in recent years, this may not be possible.
A further complication is if you pay yourself a tax-efficient low salary and take dividends to top up your income. Some providers do not take account of dividend payments – they are, after all, not supposed to be a regular occurrence – and so greatly understate your potential borrowing capacity.
One option is the self-certified mortgage. Self-certification was originally aimed at the self-employed worker or those with irregular incomes such as seasonal holiday workers. Recently they have been extended to freelancers with their own companies and do offer one way forward. However, the suppliers see them as a greater risk and will expect both larger initial deposits and higher interest rates as a result.
If you have been trading more than three years and can provide proof of a consistent income at a suitable level, then you should not have a problem obtaining a mortgage, even in these very risk-averse times. If you can not, then self-certification may be the only option: even then you might consider moving to a more traditional mortgage deal after a few years, when your supplier will know you are a good risk.
There are several financial companies who specialise in obtaining mortgages for freelance contractors. They have studied the market and have a more informed view of the risks of supplying freelance workers. They should be your first port of call.
Finally, a word of warning. Misrepresenting your income to get a mortgage, or any other financial advantage, is a criminal offence. The FSA has recently taken steps to prevent mortgage brokers taking this route. Apart from the legal risks you face, you may find yourself financially over-stretched, so be honest about your income.
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Image: LEGO house by Atsushi Tadokoro
