Last reviewed on 8th July 2023 by Martin Alexander (Mortgage Advisor)

Freelancing has become a popular trend over the years. If you’re a freelancer, you can work with many different clients and have the flexibility that traditional employment rarely has. In comparison, getting a mortgage as a freelancer can be challenging compared to regular employment.

If you’re employed and freelance in your spare time, using income from freelance work towards your mortgage isn’t always a straightforward task. Having said that, lenders are aware of the increase in mortgages for freelancers and will consider income from freelance work.

There are now over 2 million freelancers in the UK, and this number is increasing, especially since the pandemic. Each lender will consider freelance applicants, but each has different assessment criteria. While getting a mortgage as a freelancer with one lender may be easy, it can be difficult with others.

This guide will cover everything you need to know about applying for a mortgage as a freelance worker. Our experts are also available to answer your questions.

Are mortgages for freelancers different to regular mortgages?

It’s first important to explain that mortgages for freelancers and mortgages for employed applicants are exactly the same. There aren’t any particular mortgage deals for freelancers. The only difference between a freelancer and an employed applicant is how a mortgage application is assessed. This means that each lender will assess your employment status and income, among other factors such as your credit history.

If you’re a freelancer, applying for a mortgage is often far from easy, but that’s not to say you shouldn’t apply. This is because freelancing has varied income each month, which often fluctuates. Sometimes, the difference in income can raise concerns regarding your affordability.

When compared to employed applicants, lenders can see a clear annual income or base salary. This allows lenders to gain a good understanding of what an applicant earns and is projected to earn. As a result, affordability can be calculated with little difficulty.

As a freelance worker, lenders will assess your application differently from employed workers. This is why preparing your application beforehand will increase your chances of approval and allow you to borrow more.

How do lenders assess mortgages for freelancers?

Freelance work varies quite considerably. For instance, you may have several contracts with companies that span for months, even years. You may freelance for different companies as and when the work comes in. As a result, lenders will assess your application according to your income and how you freelance.

It’s important to show lenders that your income is guaranteed or at least highly likely to continue or increase. The last thing lenders want is for you to take a mortgage and then get little or no work from freelancing. Outlining the stability of your income is crucial in getting a mortgage as a freelancer, as you’ll need an income to repay your mortgage.

Mortgage lenders for freelancers typically require accounts or tax returns, depending on how your freelancing work is structured. For instance, if you’re a sole trader, you’ll require a tax return such as an SA302 from the HMRC. If your freelancing is under a limited company, you’ll need accounts signed off by a qualified accountant.

Employment structures can vary and overlap, so consult an advisor if you need clarification on which category you fall under.

How much income history do freelancers need for a mortgage?

Most lenders require at least three years of income history. Some lenders may approve you even if you’ve only been freelancing for one year. Having contracts for future work can also help your application. Nonetheless, you’d need to have an income history for at least one year if it’s your only income.

Having been a freelance worker for several years with a proven track record will place you in a better position than if you’ve only been freelancing for a short period. However, if freelancing is an additional income to other work or income from investments, most lenders should consider you.

Some lenders are more suitable for self-employed applicants, mainly due to the flexibility in their assessments. This is because other lenders can be more strict when assessing freelancers. One lender may accept you if you’ve only been a freelancer for one year, whereas a different lender could request up to three years of accounts.

If you need help with what to do, make an enquiry with an advisor who will inform you of what’s possible. Avoid applying directly with a lender yourself. If you’re declined, it will leave your chances of getting a mortgage very slim.

How much can a freelancer borrow?

As a freelancer, your income is likely to fluctuate from year to year. As a result, many lenders will use an average of the last three years to establish your affordability.

It’s important to understand what a lender will classify as income. Whether a lender uses your salary, net income or daily rate depends on how your freelancing work is structured.

If you’re a sole trader, lenders will use your net income to establish your affordability. If you’re a director of a limited company, lenders may consider your salary and dividends. Some lenders may even allow you to use retained profits in a business.

If most of your freelancing work is based on contracts, lenders are likely to assess the overall value of your contracts. Other lenders may base your affordability on your daily rate.

Once you’ve established the income a lender will use to calculate your affordability, you can determine what you can borrow. For instance, most lenders typically allow you to borrow three to five times your annual income. Whether that’s based on net profits, retained profits, or even a salary depends on what you’ve declared and documented.

Use our self-employed mortgage calculator to find out how much you can borrow as a freelancer.

Will I need a large deposit?

Using an income from freelancing can raise issues when applying for a mortgage, particularly around affordability. That’s why a larger-than-average deposit can considerably boost your approval chances. Lenders base their decisions on the risks involved with each applicant. Saving the largest deposit possible can minimise the risk attached to your application.

Aim for a deposit of at least 25%. You can also benefit from the best deals if you can save deposits of 30-40%.

Please bear in mind that there isn’t one rule for everyone. If your freelancing income is well documented and proportional to what you want to borrow, you may qualify for a mortgage with a 5% deposit. Nonetheless, larger deposits have advantages such as better rates and can add credibility to an application.

Mortgage advice for freelancers

It’s crucial to speak to an advisor who has experience in mortgages for freelancers. If your application is high-risk, you could be declined. Specialist advisors will tell you whether a mortgage is likely. Furthermore, an advisor with experience with freelance applications can structure your application to show its true potential.

Even if an underwriter has a specific issue with your application, advisors can often ease any concerns by providing the correct paperwork. Preparation is crucial in getting a mortgage, especially as a freelancer. You can speak to an advisor by making an enquiry. We’ll then review your situation to let you know what’s possible.