Freelancer First Time Buyer

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A Guide for Freelancer First Time Buyers in the UK

Congratulations on embarking on your journey to homeownership! As a freelancer and first time buyer in the UK, you may face some unique challenges compared to traditional employees. But don’t worry, whether you’re a freelancer, contractor, or running your solo venture – this guide gives you the insights and confidence to realise your home-buying aspirations.

Understanding Deposits:

Deposit is key. A 5% minimum is typically required, but it’s wise to aim higher as a freelancer. Targeting a 10% or even 15% deposit can significantly enhance your mortgage prospects, leading to better rates and lower monthly payments.

Income Considerations:

Stable income is crucial for lenders. While securing a mortgage with one year of accounts is possible, having two years of detailed tax returns and business accounts broadens your options and improves access to competitive rates. Collaborate closely with your accountant to keep your financial records in prime condition for mortgage applications.

Let’s start by debunking a common myth: freelancer mortgages aren’t an elusive concept. They’re essentially just like regular mortgages. The difference lies in how we evaluate your unique situation throughout the process.

Exploring the Mortgage Market as a Freelancer:

The mortgage landscape can be complex, and many lenders work exclusively through mortgage advisors. Partnering with a mortgage advisor specialising in freelancers can be incredibly beneficial. They’ll understand your unique income patterns and can guide you to deals that suit your business model, handling the intricate details and negotiations for you.

Choosing the Right Mortgage:

Every mortgage is different, especially for freelancers. Here are some options:

Fixed-Rate Mortgage: Secure a constant interest rate for a certain period. Ideal for managing finances amidst fluctuating income.
Variable-Rate Mortgage: Interest rates may vary based on market trends.
Tracker Mortgage: Interest rates that follow a benchmark rate, like the Bank of England Base Rate.
Interest-Only Mortgage: Only the interest is paid monthly, not the principal amount.
Repayment Mortgage: Includes both interest and principal in monthly payments.
Offset Mortgage: Link your savings to reduce the interest on your mortgage balance.

Affordability Assessment:

Expect thorough scrutiny from lenders, assessing your earnings, outgoings, and debts. Be honest about what you can afford, ensuring you’re comfortable even in leaner income periods.

Imagine this: your income is in harmony. Now, you can calculate how much you could potentially borrow. Most lenders allow freelancers to borrow three to five times their annual income. Whether they focus on net profits, retained profits, or your salary depends on your financial journey.

Additional Tips for Success:

Be Organised: Keep your financial records for a smoother application process.
Connect with Other Freelancers: Learn from those who’ve been through it and gather helpful advice.
Know Your Credit Score: A solid credit history can enhance your loan options. Check your score here (link).
Minimise Debts: Reducing liabilities enhances your appeal to lenders.

Remember, buying a home is a long-term commitment. Stay informed, seek professional advice, and with determination and planning, you’ll be celebrating your new home in no time – a testament to overcoming the freelancer first-time buyer’s hurdle!

Why is the first mortgage payment higher?

The initial mortgage payments might be higher than your regular monthly payments. That’s because they include interest from the day the funds were released up until the end of that month, along with the payment for the upcoming month. This structure ensures that you’re getting the mortgage payment cycle in sync with the calendar month.

Can a first-time buyer rent out their property?

Generally, first-time buyers can’t rent their property. That’s because the lender approved the mortgage for a residential home, not a buy-to-let property. In certain circumstances you can ask the lender for consent to let. Where a lender grants consent to let the property, it means they’re permitting you to rent out your house while you still have a residential mortgage. However, this permission usually has a time limit, typically lasting for 6 to 12 months. Consent to let is ideal if you intend to rent out your property for a temporary period, as it’s not a long-term arrangement. Always make sure to understand the terms and conditions of consent to let from your lender.

Can I get a Buy to let as a First time buyer?

Indeed, a first-time buyer can apply for a buy-to-let mortgage, but it might be more challenging compared to those who have owned property before. The availability of buy-to-let mortgages for first-time buyers is limited, accounting for roughly a fifth of the market. Additionally, you might need to provide a larger deposit when seeking such a mortgage. It’s advisable to research thoroughly and consult with a mortgage advisor to understand your options and requirements.

Understand Your Credit File

When greeting ready to apply for a mortgage it’s essential you understand your credit history.

We recommend Check My File who offer a 30 day free trial (usually £14.99 per month, you can cancel at anytime)

The Check My File Report provides you with a summary from three different credit reference agencies (Experian, Equifax & TransUnion).

Mortgage lenders use different credit reference agencies and you are able to see what the lender see prior to making any applications.