Down-to-earth and with a knack of cutting straight through all that mortgage jargon, Andrew Montlake is Director of award winning mortgage broker, Coreco.
Grabbing a coffee with hubbul, 'Monty' dished out his top tips and shed some light on the pains of getting a mortgage as a freelancer.
Let’s dive in. Why is it such a pain to get a mortgage as a freelancer?
"Lenders like simplicity. It’s as simple as that. They find it easier to deal with people who fall comfortably into a tick-box. You know, the people they can quickly assess based on one or two really simple questions.
"Employee? Stable income over the past 3, 6 or 12 months? Tick. Most of the time, that's the way the standard mortgage application process goes.
"But freelancers and contractors aren't so black and white - as far as lenders are concerned, anyway. The 'problem' - and I say problem in inverted commas, with the self-employed is that underwriters aren't sure at how to look at them, let-alone begin assessing them. So there's a big lack of understanding from the lender's side.
"On top of this, plenty of lender's systems don't accommodate freelancers or contractors. Sometimes it's as simple and as annoying as system issues - and you're unable to even get to the next stage of the application because freelancers don't fall into a simple box.
A fair few high-street lenders don’t want to individually underwrite cases, just because it takes longer. They want to churn out mortgage offers to the guys that fit into their way of assessing people. It's pretty unfair."
Should freelancers really be considered that much of a risk, bearing in mind job security for employees barely even exists these days?
"Good point. And that’s exactly our argument. Ironically, they’re happy to lend 90-95% loan to value to a first time buyer who’s been in their job just three months, but reject a seasoned freelancer or contractor.
"Lenders claim that in a downward turn, the smallest businesses would be hit the hardest. But that’s never held much salt with me. Everyone is hit in difficult times - that goes for small, medium and big businesses.
"If anything, I actually think the self-employed have a lot better track record of coping with uncertainty, which is where the understanding on the lending side needs to get a whole lot better."
Let’s say you have 3 year’s worth of accounts. Where does this leave you?
"In fairly good shape actually. That, along with a steady income and increase each year, and a solid track record of repaying debts – you're in a good position to go and get a mortgage."
And if you don't?
"Well, this is where the difficulty lies. Maybe you’re a contractor but with only two contracts under your belt, or a freelancer who’s been doing it for less than a year – you won’t fall into many lenders’ ‘tick-boxes’.
"Right now, lenders’ thinking is far too black, white and impersonal. And what's worrying is that the number of people who find themselves in this position is only getting bigger."
What's the solution then?
"First off, find a reliable professional broker - and one that will ask the right questions and take more time and care to understand your position a little better.
"Get in touch with an accredited accountant too. Without 3 years of accounts, they're the guys to steer you in the right direction and help get your financials in order, ready for an application.
"On a positive note, there are some lenders out there who only ask for one years' accounts.
"Sure, there's only half a dozen good niche lenders for the self-employed. But they're decent lenders with decent rates. It's a long, overdue but very welcome step in the right direction."
So you're saying we're heading towards more 'personalised' mortgages?
"To a certain degree, yes. And the good news is that everyone is finally starting to just about ‘get it’.
"There’s no denying that the workforce has evolved, which is gradually changed lenders' thinking. I’m not saying the tide’s completely turned, but lenders are beginning to look closer at personal circumstances, rather than judging people straight off the bat, and on whether they can be lumped into a tick-box.
"Specialist lenders, on the fringes, who might not be able to compete with the big-boys on price, have entered the market. These guys have underwriters with the right experience, are happy to look closely at your accounts, and take a bit more care than a lot of the high-street lenders."
Will mortgage applications ever cater well to the self-employed?
"Yes. Bit by bit, the landscape is changing. They might say: ‘Okay, we can see you’ve been in the industry for a fair few years before you went freelance, and logic suggests that you’re on an upward curve of earnings, which we’re happy with.'
"It's been a long time coming, but gradually lenders are starting to react to the change in the workforce.
"Where freelancers and contractors are concerned, Halifax have been a big player in the market, with some really sensible policies. Now we’re seeing other lenders making the move too. They've had no choice."
What else has to change?
"Remove the prejudice. At the moment it’s almost as if there’s a two tier system. If you’re employed its usually happy days, and you're in a better position to get a mortgage than a freelancer, regardless of income, experience and potential. Right now, if you're self-employed, you find yourself discriminated against from the word go."
Finally, some golden advice for freelancers applying for a mortgage...
"Prepare. Get all your documents together. Organise your accounts, along with 3-6 months worth of bank statements. The more you have at the ready when making your application, the quicker it's going to happen.
"Secondly, never automatically assume you can’t get a mortgage simply because you’re self-employed. Sure, there are more hoops to jump through, but actually, if you chat with the right broker, you'll probably find that you'll be able to get on the property ladder. There are plenty of products out there for everyone, and take heart, because the market is evolving."
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