According to research by PricewaterhouseCoopers (PwC), contractors earning an average annual salary of £30,000 will face a difficult year in 2010.

Tomorrow’s Pre-Budget Report is expected to reveal a 2.4 per cent decline in earnings for middle earning households, with mortgage debt and short term credit repayments continuing to bite hard on family finances.

The report also suggests that higher earning individuals will see something like a 9 per cent reduction in their spending power, as the nation as a whole prepares for a dramatic reduction in the standard of living.

As well as the re-introduction of the 17.5% VAT rate, Council tax is also expected to rise by around 3 per cent next year.

According to John Hawksworth, the head of macro-economics at PwC, the most striking result of the report is the “sharp projected squeeze on discretionary spending for a highearner, hit both by higher taxes and a potential marked rise in mortgage interest payments in 2011-12, as well as by higher petrol prices.”

The Conservatives are already labelling the economic situation as Gordon Brown’s “legacy to middle Britain”. Conservative Treasury spokesman Philip Hammond said “His (Brown’s) debt crisis has saddled hard-working families with a huge bill that they and their children will be paying for years to come.”

As well as IT contractor accountants and those that work in the media, middle earners often work in healthcare sectors, as well as nuclear, oil and gas.

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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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