CAN YOU GET A MORTGAGE & BUY A HOUSE IF YOU’RE SELF EMPLOYED?
BUYING A HOUSE AS A FREELANCER IS POSSIBLE!
Dodging the question ‘so when are you going to buy your own place?’ became somewhat of a personal skill over the last decade. As soon as I started to do ok for myself I was quizzed by every colleague, distant relative, school friend and stranger as to when I was going to get on the property ladder – despite the fact that I was single and living in London for the majority of my twenties. Unlike the majority of Europe, it seems that owning your own home is as much an expectation from society as getting married and having children (even though it’s 2019 and by now we should be free to make the choices that are right for us and nobody else,) and I really started to feel the pressure. I’ve always wanted to own my own home, to decorate it how I wanted and to fill it with animals that rented accommodation just doesn’t permit, but for a long time that honestly seemed like a bit of a pipe-dream… Especially as for the last six years I’ve worked for myself.
Over the last few years I’ve been squirreling away savings in the hope that one day it would form the basis of a house deposit, but I honestly didn’t think so soon I’d be sitting here writing from my office in our very own home with a puppy asleep at my feet. In fact, after worrying about it for a long time I was actually amazed at how easy and seamlessly it seemed to happen in the end – and I really wish I’d had some advice from other self employed entrepreneurs much earlier. Since we bought our first home I’ve received a lot of questions about buying a house as a freelancer, the process and how we made it happen, so I thought I’d pull together some of my learnings and top tips – just in case it helps any of you in the future.
FIND A MORTGAGE BROKER YOU TRUST
Walking into this process I had little to no understanding of what was about to happen, who we would need to commission to work on our behalf, but the number one piece of advice I kept hearing was to find a great broker. They work essentially as a go-between, looking at your finances and asking all the relevant questions to assess your affordability and general lending level, and it’s their job to find the best lender to meet your needs – even more important if you’re self employed. Looking at numbers is their specialty, so before you start your house hunt it’s worth booking in for a consultation to see what your options are and what you need to do to make your dream home a reality.
HAVE TWO YEARS WORTH OF TAX RETURNS
I’ve always believed you needed four years worth of tax returns, but the majority of lenders will only ask for two in order to prove your income (which is still substantially more than the three months you have to prove if employed.) If your income fluctuates be prepared for them to take an average or the lowest of the two, which may impact the amount of money you’re able to borrow. Remember also that income is submitted to HMRC in retrospect, so this actually take nearly three years to submit and have a record of your earnings, so if buying a house is on your horizon it’s worth thinking about the logistics sooner rather than later.
BE PREPARED TO ANSWER QUESTIONS
Your mortgage lender will need extra reassurance to counteract the ‘instability’ of self employment, so they may ask many more questions than your employed counterparts. Even though my husband earns significantly more than me and is a decade younger, it was me that came under a lot of scrutiny: justifying any fluctuations in earnings, sending off extra paperwork, sharing my records of tax payment and even having a letter from my accountant to confirm my predicted future earnings. I’d definitely recommend getting an accountant (even if only temporarily) to help guide and support you through the process too – an added expense, but definitely worth it.
WORK ON YOUR CREDIT RATING
I may have started off as a super savvy saver, but a few years at university and a few more working on a super low wage as a graduate left me in a lot of debt and with a terrible credit rating; missing payments, going over my overdraft, having CCJs – you name it, I ticked it off. Over the last six years I’ve worked hard to really improve my financial stability and my corresponding credit rating, and without doing that I’ve no doubt I wouldn’t have been approved for a mortgage. I made an effort to not take on any finance, set up direct debits for all our bills, took out a credit card and ensured it was paid off in full every month, removed my overdraft facilities and got rid of any outstanding debt. All of this helps hugely, so put aside a significant period of time to get your credit score in check.
BUILD UP A SUBSTANTIAL DEPOSIT
If you can contribute a significant deposit lenders are more likely to overlook the ‘instability’ of your self employment; it also reduces your monthly repayments, which helps with affordability. Obviously this is harder than it sounds and can take years to do, so it’s just about being realistic – which takes me on nicely to my next point…
DON’T BUY MORE THAN YOU CAN AFFORD
Your first home doesn’t have to be your dream or forever house, because often it’s that first step onto the property ladder that’s the hardest. It’s so important to not stretch yourself too thinly, be too optimistic about your future earnings or get yourself into a situation where one rubbish quarter means you can’t afford to ever leave the house. Working for yourself means that we have great months and awful months, really busy years and really quiet years, so it’s vital that you don’t end up with a mortgage that becomes unrealistic if you have an unexpected tricky period. Buying a house as a freelancer is more than just that first step – it’s about the long term too.
REMEMBER THE FEES
If you’ve saved up £25,000 then I guarantee you around £5,000 -£8,000 of that will go towards solicitor and mortgage broker fees – as well as your stamp duty. (For reference we paid about £6,000 in fees and stamp duty.) It’s easy to forget all the boring things you have to pay for when you’re getting so excited about buying your first home, but you need to allow a significant buffer to cover costs so you don’t get yourself in a pickle; you won’t be able to exchange and complete without clearing these.
I’m by no means a financial expert, a property expert or anything in between, but we did manage to find and buy our very own three bedroom new build in the space of six weeks and learned a lot in the process.
If there’s one piece of advice I’d give it would be this: yes, you can buy your own home if you’re self employed – but you may just have to work a little harder for it along the way.
Do you have any other pieces of advice or experiences buying a house as a freelancer? I’d love to know!