As many of you know, at the end of 2017 I purchased my first apartment. It was a very long process, involving years of saving, around eight months of searching and a five month buying process.
Since moving in at the beginning of January I’ve had a number of requests from readers who are keen to know more about my mortgage experience. And, more specifically, how I was able to find a mortgage whilst being self-employed/working freelance.
There were three stages in my journey, and I’ve outlined them all below…
Stage One: My Initial Mortgage Offer
After years of living frugally and saving like a
mad overly cautious woman, I finally decided to start exploring the possibility of buying my first home in the winter of 2016. And setting up a (free) meeting with the mortgage adviser* at my local bank was my first step.
My dad came along with me because, despite being 26 at the time, I felt the need to have an “adult” present. Mortgages felt so alien to me!
The bank’s in-branch mortgage adviser explained how mortgages work, asked how much my deposit was and took an average of my previous three years’ income. He then provided an estimate of how much the bank would be willing to loan me.
It wasn’t as much as I expected them to offer, and I knew that when added to my deposit it wouldn’t give my budget the significant boost it needed. So I left feeling deflated. (Depressingly, when taking this mortgage offer into account the only “properties” I could afford on Rightmove were parking spaces).
Stage Two: Questioning the Initial Offer
I knew that I could comfortably afford to make higher monthly repayments than those quoted in my bank’s mortgage offer. Therefore I technically should have been able to borrow more. But the in-branch adviser told me I was unlikely to receive a better offer elsewhere, because banks are always more generous to their existing customers (spoiler alert: this isn’t true).
For a few months I restricted my search to the measly budget drafted up by my bank, but it was impossible to make any progress. There was nothing available within that price range – even with property prices falling, post-Brexit.
One day I was talking to an estate agent over the phone, and I explained my situation and the budget I was working with. They suggested I speak to a mortgage broker, and recommended someone.
I immediately contacted the broker they suggested, and we had a brief telephone consultation (this was free of charge). Within seconds of speaking to him I got bad vibes. He was very vague about how – or even if – he could help me. And weirdly seemed more interested in discussing how I could help his wife who “really loved fashion”.
Obviously I immediately vetoed him. But one good thing did come out of that terrible conversation… It lead me to search for a less shady mortgage broker.
Stage Three: Working With a Mortgage Consultant
My mum started asking around, and her then-boss (who bizarrely also used to be my Religious Studies teacher – a twist I’m sure you didn’t see coming) recommended his mortgage consultant. Apparently he’d been working with this consultant for years, both to secure his initial mortgage and each time he re-mortgaged.
So I called Michael, the mortgage consultant, and it was an immediate game-changer. He was so generous with his time (we spoke for about 40 minutes on that initial, free phone call) and was happy to answer any questions I had.
Michael took note of my deposit along with details from my last three tax returns. Then, whilst, we were still on the phone, he gave me some rough estimates of what different banks would offer me, given the exchange rates at the time. He felt confident that if I wanted to borrow £100,000 (!!!) more than my bank had offered I would be able to.
The next step was a sit-down consultation (again free), in which Michael took a closer look at my finances and calculated how much I could comfortably repay each month. He then presented various options to me – “if you borrow X amount you’ll repay Y each month” etc – and discussed fixed-rate mortgages.
After that meeting I felt positive about my search for the first time. I decided to start working with Michael, paid his one-off fee (a few hundred pounds) and he then started lining up potential mortgages on my behalf.
In the end I opted for a two-year, fixed-rate mortgage which Michael secured, and was able to borrow significantly more than my bank had offered. I know for a fact that I wouldn’t have ended up in my beautiful flat had I not had Michael’s help, so fully endorse working with a mortgage adviser/broker/consultant*. Just be very selective about who you choose to work with, and go off personal recommendations if you can.
Tips for Getting a Mortgage When Self-Employed or Working Freelance
1. Every bank has a different approach to freelancers and those who are self-employed. Some banks will automatically see you as a higher risk and will be more conservative when lending to you. Others are more flexible, and will assess each individual’s financial situation first before making a judgement.
2. If you’re self-employed or work freelance most banks will want to see your most recent three years of tax returns. They will then take an average of your annual income.
If you switched from being a sole trader to limited company during that three-year period some banks might get a little cagey. But, again, other banks will be more open-minded and view it as a sign of financial growth. (This is where it becomes a bit of a midfield, and why I would recommend working with a trusted mortgage consultant, who can guide you through the process).
3. Unless you want a mortgage that is at the absolute top end of what you can afford to borrow, it’s wise not to apply for a mortgage until you have an offer accepted. There are two reasons for this. First of all, it affects your credit score each time you apply for a mortgage. And, secondly, every mortgage offer comes with an expiry date. So if you apply for a mortgage before you find a property it could run out before you actually have an offer accepted and are ready to exchange contracts.
To get around this, Michael spoke to numerous banks on my behalf before I found a suitable property, so I was able to tell estate agents I had a mortgage “agreed in principle”. Once I found my flat (it took close to eight months of searching) and had my offer accepted (it was rejected twice) Michael then officially applied for my mortgage.
Are you currently thinking about getting your foot on the property ladder and struggling to understand mortgages? And do you have any advice for getting a mortgage when self-employed or working as a freelancer?
STYLE CREDITS: Bills Organiser and Tax Organiser folders by kikki.K (these are must-haves if you have big financial goals for the year) | Desk by West Elm | Coffee mug by West Elm | Coaster at Etsy | Two-tone heels by Next | Khaki shirt by Next
* I don’t know what the difference between an adviser, broker or consultant is (if there even is a difference – all three appeared to do the same job). Throughout this article I’ve just used the exact title that each individual went by.