How to Secure a Mortgage When Self-Employed

Buying a house is a major life ambition for the vast majority of people in the UK, being a solid investment and signifier for long-term stability. In buying your first home, you provide yourself with a solid base from which to build a life or even a family – free of the insecurity that can arise from shorter-term letting agreements.

But the housing market has only become more hostile to prospective homeowners, as rising property values price more and more people out of the first rung of the property ladder. In 2021 alone, house prices increased by 10.8% - with overall house prices rising by as much as a fifth throughout the pandemic. This has impacted many across the board, but those perhaps most concerned about their standing when it comes to funding a home are self-employed.

Freelance Trade

There are well over 4 million freelancers and sole traders in the UK’s workforce, a number that has risen in recent years due to several factors. But the nature of freelancing makes regular income less of a certainty – and could pose serious issues when it comes to guaranteeing funds in the form of a mortgage. What exactly are the challenges facing the self-employed, and how might a freelancer approach secure a mortgage?

Salaried Vs Freelance – Getting a Mortgage

There are some fundamental differences between working for oneself and working as a salaried employee, which can have a serious impact on the ease and viability of securing financing for the property. Salaried workers enjoy a degree of security in their role, bolstered by comprehensive legal protections. These assurances translate to financial security and work in one’s favour when applying for a mortgage.

Freelancers, meanwhile, do not enjoy the same securities. For the sole trader, all profits and losses are treated as personal finances in the form of income or debt. This can leave freelancers in a more precarious position when it comes to mortgage financing, with lenders exercising more caution.

How to Get a Mortgage as a Freelancer

But obtaining a mortgage is certainly not impossible for the freelancer. The process is simply a little more involved. The first challenges are shared amongst all mortgage applicants, relating to credit history.

As a freelancer, you may be more likely to have a bad credit history or personal debts associated with your business. Paying off debts should be a priority to improve your credit score, and chances of securing a mortgage. There are loans available that enable you to consolidate your debts even with a poor credit history.

The next challenge, unique to freelancers, is to convince lenders of your financial security as an individual. To do this, you will need more robust records than a salaried employee. You will need to demonstrate regular income for at least two years, via your self-assessment tax returns.