Freelancers: Top tips for securing your next mortgage
When you first decided to make the leap into ‘freelancing’ and entered the independent workforce, you probably didn’t plan for the challenges you have had to overcome throughout the past year. Brexit, off-payroll working rules (IR35), and let’s not forget the pandemic – but you have made it!
If your mortgage plans were derailed in the process, fear not, we have enlisted the help of freelancer mortgage experts CMME to shed some light on the current mortgage landscape and help set you up for success.
Are you a first-time buyer?
If you have been thinking about stepping on to the property ladder but were forced to put your plans on hold during the pandemic, you’re not alone. IPSE collaborated on a research project with CMME to further understand self-employed professionals’ experiences with mortgages which revealed the main reason is linked to the high cost of deposits required.
This doesn’t come as a surprise following an unprecedented year which has impacted those new to self-employment and working through limited companies in particular. However, government support like the mortgage guarantee scheme announced by Chancellor Rishi Sunak in March means freelancers can now access 95% loan-to-value mortgages until December 2022.
The scheme was introduced to help buyers with lower deposits move forward with their mortgage plans by offering 95% mortgages with just 5% deposits up to a property value of £600,000.
Additionally, homebuyers can benefit from considerable savings on residential properties on the first £500,000 until the Stamp Duty Holiday comes to an end at the end of June, but first-time buyers will continue to pay no stamp duty on the first £300,000 of a property from 1 July 2021.
Thinking about remortgaging?
If you have an existing mortgage and would like to save money on your monthly repayments or raise additional funds, now could be the perfect time to remortgage with the Bank of England Base Rate currently at a historic low (0.10%).
If you are amongst the UK homeowners wasting £4,500 a year on unfavourable Standard Variable Rates (as reported by the Evening Standard), you may not be getting the best deal but could potentially save £1000s by remortgaging. Your lender will automatically switch you to a Standard Variable Rate (SVR) at the end of your current deal so setting a reminder around 3 months before your mortgage is due to end will give you enough time to research current rates and help you find a better deal.
Alternatively, you could remortgage to release funds from the value of your home by increasing the mortgage loan and access the lump sum for anything from consolidating debts, renovating your home office, or to pay for a big purchase you have been planning.
Considering investing in a Buy-to-Let mortgage?
Investing in a Buy-to-Let property can be a good way of expanding your property portfolio whilst boosting your income. With private rental prices rising by 1.3% in England, by 1.5% in Wales and by 1.0% in Scotland between March 2020–March 2021 according to the ONS, this could be an ideal time for self-employed professionals to consider becoming a landlord.
There are however additional costs you should factor in to prepare for the mortgage process:
Deposit: most lenders will require a minimum of 25% deposit
Surveyors’ fees: to give you an idea of just how much you might need to invest in a property after you buy it
Stamp duty: the rates for landlords and anyone buying a second home is 3% of the property up to £500,000, then 8%, 13% and 15% for the higher price tiers.
IR35: Will I be eligible for a mortgage or remortgage if my take home has decreased?
If your take home has decreased due to falling inside IR35, a lender will simply work from the new contract terms (daily or hourly rate) when assessing your application.
Moreover, if you have received the Self-Employment Income Support Scheme (SEEIS), the Bounce Back Loan Scheme (BBLS) or applied for a mortgage holiday, you could still be considered for a mortgage application if you are currently working. Although these grants cannot be used to assist with a mortgage deposit, lenders are not outwardly concerned about the use of the funds.
If you have been placed on furlough or are currently out of work, you would need to ensure you have been back in work for at least three months before applying for a mortgage.
What should I consider when sourcing a mortgage as a freelancer?
The joint research also showed that a large proportion of freelancers would like more support to understand what they need to consider when sourcing a mortgage, as well as advice to get their finances in order before applying.
The mortgage process may seem daunting on any occasion, however, when you factor in the effects of a pandemic, the off-payroll working rules (IR35), and Brexit, it becomes even harder. That being said, there are certain steps you can take to improve your chances and get yourself in the best position to secure a mortgage – whether you’re a first-time buyer or an existing homeowner:
Check your credit report: maintaining a high credit rating is an essential step and although it will not guarantee approval it will certainly increase your chances.
Improve your credit score: if your score is not currently in the best position for a mortgage application then naturally, improving it is the next step. Here are a few tips to get you started:
- register on the electoral roll
- pay off existing debt
- don’t miss bill payments – pay on time
- check for any errors and have them removed
- don’t undertake credit searches before you look at mortgages
- consider Credit Karma for keeping track and helpful tips for improving your credit score
Get your paperwork ready: whether you are self-employed or switched over to umbrella employment, ensure your CV is up to date and obtain a copy of your current contract as this will be used to demonstrate your earnings.
Review the marketplace: research the marketplace to determine what type of mortgage might suit your individual needs and investigate all costs associated with the property (e.g. a leasehold flat will incur monthly and annual charges in England and Wales) including council tax, insurance and utility bills.
Speak to a specialist: the reality is that most lenders have little understanding about the self-employed sector which means that their standardised procedures do not accommodate freelancers.
This applies to both first-time buyers and existing homeowners – preparing in advance can help set you up for success and achieve your mortgage goals.
Find out more about securing mortgage funding as a freelancer at CMME’s ‘Self-employed mortgage masterclass’ webinar featuring Head of Mortgages Simon Butler.
Our partner CMME specialises in providing mortgage advice for independent professionals, with access to some of the most competitive rates on the market. So, however you choose to work, CMME will fight your corner and ensure the right mortgage deal is available to you.
Your property may be repossessed if you do not keep up repayments on your mortgage.