Buying a property is hard enough as it is, so when you throw self employment (periods of guaranteed work, periods of reduced/no work and irregular income) into the mix, things get somewhat more complicated.
Since the 2008 recession (which let's not forget was driven massively by property mortgages being sold to borrowers with no income, no job, no assets and no ability to pay the mortgage back), there have been a number of initiatives launched to help people manage their money in a less risky way when it comes to property. But we wont bore you...you just want to know our tips on how to get a house if you're self employed/freelance, don’t you?
Perfect your credit score.
More often than not, the lenders of self employed individuals will pay even more attention to a credit score, a.k.a. a number which dictates your creditworthiness and how much risk the lender takes when you borrow money. A couple of points to consider when perfecting your score:
1. Undergo a deep review of your credit profile to ensure it is accurate (including anything held against your business..see below)
2. Pay off as much debt as possible, or make frequent payments towards your debt
3. Make sure you’re on the electoral roll
4. Close any unused cards
5. Try not to apply for new credit or undertake credit searches before you look at mortgages.
6. Avoid insurance companies who credit score
An important thing to remember is to make sure your business is credit proof.
Any bad credit recorded against your business could result in you as an individual having a mortgage application declined. This could be something as small as a unpaid supplier invoice.
Have the receipts i.e. bank statements and be prepared to explain them
For self employed individuals, lenders use personal taxable earnings averaged over a period of 2-3 years, rather than using gross contract income over the past 3 months (which is done for employed applicants). You’ll need your personal and business bank statements (and potentially from your family if they are stated as a guarantor), an in-date passport and/or a driving licence, proof of your earnings (contracts, and maybe trading accounts if you don’t work via contracts) and proof of deposit (the bigger deposit, the better as the lower the interest rate)
You may also need to be able to explain any fluctuations in your income.
Research all the costs
It’s often easy to forget that buying a property isn’t just the price you see advertised in the Estate Agents window. It’s the Surveyors Costs, Legal Fees, Stamp Duty, Lender Fees, and for Leasehold flats annual charges in England and Wales apply.
Consider government buying schemes.
Help to Buy/Lifetime ISA
A Help to Buy ISA or Lifetime Individual Savings Account is for first time buyers looking to move into a new build house up to a maximum value of £450,000. The Government boosts your savings by 25%, up to a maximum of £3000 (i.e., if you save £12,000 and they will top it up with £3,000 to give a total of £15,000). Both ISAs allow you to save up to £200 a month.
Unfortunately, you cannot open a Help to Buy ISA anymore, however you can still keep saving in your account if you have already have one opened. For those with existing Help to Buy ISAs, you can claim date of all funds within Help to Buy ISAs being 1st December 2030.
If you’re not in a position to get a full deposit together (because believe us, they are a lot of money) or buy outright, then shared ownership is an option.
This is where you will buy a share of your property and pay rent on the remaining percentage.You will usually start by purchasing 25 – 75% of the property to begin with, and have the option to purchase more by ‘stair-casing’.
To qualify for Shared Ownership have to be earning up £80,000 an of household income (£90,000 a year or less in London), be a first-time buyer, or a previous home owner BUT you can’t afford to buy one now or are an existing shared owner looking to move.
Choose a lender that is favourable towards freelancers
Some lenders just don’t get freelancing.
This is either because they are not given training to understand it or because they see people in employment as a more attractive offer.
Do you research and talk to other people within your community to assess which lenders are good and which ones you should avoid. It’s also worth engaging with a mortgage specialist who helps self employed individuals to purchase their property.