Securing a mortgage if you don’t have a fixed income

10 Jan 2019

Securing a mortgage if you don’t have a fixed income

The world of work has changed enormously over the last few decades. Digital technology has revolutionised the way we earn an income and led to a workforce that’s far more flexible. It’s a change that many are taking advantage of but, if you don’t earn a fixed income, it can be a hindrance when you want to get on the property ladder.

Office of National Statistic figures show the number of self-employed workers is on the rise. In 2011, 12% of the workforce, or 3.3 million people, were classed as self-employed. By 2017, this had risen to over 15% (4.8 million). The statistics represent the rise in the gig economy, freelance opportunities and entrepreneurship. However, while there are many advantages, there are also drawbacks, including when you apply for a mortgage.

Mortgage providers want to ensure you’re able to meet your repayment commitments. If you don’t have the security of a fixed, monthly income this can mean you face additional obstacles during the application process. It can mean your application taking longer to be approved and, in some cases, may mean it’s rejected.

Impact on mortgage applications

Purchasing a property can be a daunting prospect for anyone. But research has found that it’s a step that many self-employed people think is out of reach due to their employment status. In fact, a fifth of freelancers would consider changing their job to improve their chances of securing a mortgage.

The research also found:

  • 73% of freelancers believe mortgage lenders may discriminate against them because of their employment status
  • A quarter believe they would be refused a mortgage if they applied for one
  • 45% found it difficult to provide the documents needed to apply for a mortgage

While securing a mortgage and going on to buy a new home can be more challenging when you’re self-employed, it’s not impossible.

Steps to take when applying for a mortgage without a fixed income

1. Check your credit score: Whatever your employment status, you should always check your credit score. Lenders will use this to assess how much of a risk you are and there are often steps you can take to improve it. Ideally, you should check your score at least three months before you intend to make a mortgage application. This gives you time to rectify mistakes and start to improve it if necessary.

2. Calculate your income: As you don’t have a fixed annual income, the amount you can borrow can be more complicated to calculate. Usually, lenders will want to look at your annual earnings over the last three years. They will either then take an average or the lowest to understand what you can afford to repay. Understanding this step yourself can help you set realistic expectations.

3. Get your paperwork in order: You’ll need to prove the amount you’ve earned, and this is likely to mean gathering a lot of paperwork. Accounts should be clear and accurate and may need to be signed off by a chartered accountancy firm before a mortgage provider will accept them. Some lenders may also want to see evidence of contracts and other important documents.

4. Time your application right: Your goal should be to show a mortgage lender that you have a relatively dependable level of income coming in. This means timing your application is important. Applying after you’ve experienced gaps in your employment, for example, could hinder your application. Ideally, you should apply while working on a long-term project.

5. Showcase long-term working relationships: Having repeat customers or long-term contracts shows that your skills are in demand. For lenders that may be nervous about your future earning potential, good working relationships can improve your position. As a result, showcasing multiple contracts with customers or contracts being extended can help you through the application process.

6. Use a larger deposit: If you’re planning to buy your first home, taking the time to save a larger deposit can be beneficial. The standard first-time buyer mortgage requires a 5-10% deposit but increasing this can boost your options. It helps to present you as less of a risk and indicates that you’re able to save larger sums of your disposable income. It’s a step that can give you access to more competitive interest rates too.

7. Seek professional advice: The lending market is huge, and many providers don’t have a presence on the high street. Working with a mortgage broker can help you identify lenders that specialise in mortgages to those without a fixed income. Seeking professional advice can help you target your application to a lender that’s more likely to approve it.

If you’d like support with your mortgage application process, please contact us. We’re here to help you improve your application and chances of being successful.

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