How To Improve Your Chances of Getting a Mortgage As a Digital Nomad

How To Improve Your Chances of Getting a Mortgage As a Digital Nomad
Home Blog How To Improve Your Chances Of Getting A Mortgage As A Digital Nomad
Mark Langshaw

Author: Mark Langshaw

Content Manager

Updated: April 10, 2024

In the evolving landscape of the UK’s workforce, the surge in self-employment and the digital nomad lifestyle has reshaped not just how we work, but also how we approach major life milestones, like buying a home.

With self-employed individuals now representing a significant portion of the working population, securing a mortgage under traditional employment criteria has become difficult.

This article dives into the challenges faced by those who’ve embraced the flexibility of self-employment or the digital nomad lifestyle, offering targeted advice on the mortgage application process.

From the importance of preparing your financial documentation to understanding lender perceptions of self-employment, we provide insights to improve your chances of securing a mortgage, ensuring that your work’s flexibility doesn’t limit your homeownership dreams.

How many self-employed people are there in the UK?

Over the last decade, the number of self-employed has increased massively and now accounts for 15% of the working population, rising from 3.3 million in 2001 to 4.33 million in 2024. There’s no reliable data that states how many of those self-employed people are digital nomads, but worldwide the number is increasing, with 16.9 million people in America describing themselves as digital nomads.

Following the aftermath of the recession, the number of self-employed workers aged 65 and above has nearly tripled, and the number of young people aged 16 to 24 has doubled with 174,000 people classified as self-employed at last count in 2022.

The demand for mortgages from self-employed and contract workers is rapidly exceeding growth from that of employees, which has forced lenders into loosening the ropes around borrowing to include those who work in a new ‘gig economy’.

Many believe self-employment has flourished with the rise of technology. The digital world has presented more opportunities for modern-day entrepreneurs making it easier and more accessible than ever to start a business.

Whilst the recession may have initially forced people’s hands, the online world continues to fuel it – making freelancer work a more flexible and attractive proposition in today’s working world.

Although the same mortgage opportunities should be available to all, sadly this isn’t always the case. And whilst there’s no such thing as a ‘self-employed mortgage’, with everyone applying for the same products, it can be a much tougher process for the self-employed and contract workers. But, with the right paperwork and background checks – it is definitely possible.

Why is it harder?

The financial crisis has taken its toll on self-employed lending. Gone are the days of self-certification mortgages which required no proof of income. Times are tougher and it can certainly be a more difficult process – largely because lenders are less likely to take a risk on those with fluctuating incomes.

A common problem self-employed people face when applying for a mortgage is having only one year of accounts. Most lenders sometimes require two years or three, though some specialist lenders will consider applicants with less. Be aware that lenders will average out the last two or three years of accounts, so be mindful of this when completing your accounts.

Proving your income

Generally, the longer you’ve been self-employed, the better. The more years of accounts you have on record, the better, to help open up a larger choice in lenders.

Potential lenders will assess you on business profits and might request evidence to support predictions that you’ll earn similar sums in the years ahead – asking for information on your business to see what contracts or clients are lined up.

You will need to prove the income you have declared, which can be done by supplying the business accounts. Lenders will want to see the income you’ve reported to HMRC and any tax paid. SA302 forms show this information, as does a “tax year overview” – HMRC can provide both.

Alternatively, an accountant can be used to complete and file the company accounts on your behalf, providing an accountant’s reference and necessary documents to support your mortgage application.

Mortgage brokers apply different rules depending on whether you are self-employed, a partner, or director of a limited company.

A lender will typically class you as self-employed if you own more than 20 or 25 per cent of the business. The most common way a lender will analyse earnings is by looking at the net profit of your business – whether you’re a sole trader or freelancer.

Use an accountant

How your accounts are presented could have a major impact on how much you might be able to borrow.

It’s certainly possible to submit proof of your accounts using the required HMRC documents from a self-assessment tax return. Some lenders will be more than happy to accept these and consider this satisfactory proof when applying for products.

However, it’s worth bearing in mind other lenders won’t even consider applicants without accounts that have been prepared and signed off by a qualified, chartered accountant; to be certain of the accuracy and reliability of accounting.

Something to bear in mind if you do use an accountant, it’s common practice for them to try and legally minimise your declared income so you pay less tax by offsetting profit against taxable expenses. Whilst this is good for keeping down the tax bill, it could have an adverse effect when you apply for a mortgage, as your accounts will show a smaller profit which will be taken into account when a lender is assessing your figures.

Gaps between contracts

While there are many advantages to being self-employed, the one at the top has to be the ‘flex-appeal’ in managing your schedule.  Fitting the business or work around your circumstances and life commitments – is all up to you to decide.

To err on the side of caution, in the lead-up to applying for a mortgage and buying a home, it’s advisable to minimise the length and number of gaps in between contracts and jobs.

Lenders will be looking for consistency with reliable business owners, and assured monthly payers. They could become wary or even put off by borrowers with lengthy gaps and sporadic periods off between jobs.

Mortgage Application Checklist for Digital Nomads

Securing a mortgage as a digital nomad requires careful preparation and strategic planning. This checklist is designed to guide digital nomads through the essential steps to enhance their mortgage application, ensuring they present themselves as attractive candidates to lenders.

1. Organize Financial Documents

  • Gather at least two to three years of full accounts to show consistent income.
  • Prepare your SA302 forms or a “tax year overview” from HMRC to prove your declared income and tax payments.
  • If applicable, compile any contracts or evidence of ongoing work to demonstrate future income stability.

2. Enhance Your Credit Score

  • Check your credit score through a reputable service.
  • Address any discrepancies or outstanding debts.
  • Register on the electoral roll at your current address, as this can positively impact your credit score.
  • Avoid any actions that could lower your score, like applying for new credit cards or loans shortly before your mortgage application.

3. Minimize Gaps in Employment

  • Aim for as few gaps as possible in your work history in the months leading up to your mortgage application.
  • If gaps are unavoidable, be prepared to explain them and how they don’t affect your overall financial stability.

4. Prepare for a Larger Deposit

  • Save for a deposit larger than the minimum requirement. A bigger deposit reduces your borrowing amount and demonstrates financial stability to lenders.
  • Consider government schemes or family gifts if saving independently is challenging.

5. Choose the Right Mortgage Broker

  • Research brokers with experience helping self-employed individuals and digital nomads.
  • A specialized broker can guide you towards lenders with friendly terms for non-traditional employment models.

6. Review Your Spending

  • In the months leading up to your application, review and reduce non-essential spending.
  • Show lenders you have a responsible attitude toward budgeting and finances.

7. Stay Informed on Lender Criteria

  • Research which lenders are more open to non-traditional employment types.
  • Understand the criteria different lenders use to assess self-employed applicants, adjusting your application to meet these requirements.

8. Legal and Professional Consultation

  • Consider consulting with a financial advisor or accountant to ensure your finances are well-organized and presented in the best light.
  • Ensure your accounts are signed off by a certified or chartered accountant, as some lenders may require this.

Get advice from the experts

There are two things to bear in mind when deciding whether to seek help from a mortgage expert.

First up, if you were to apply for a mortgage on your own and should the lender decide to reject you, this would be recorded on your credit file and could potentially, damage your credit score in the future, making it harder for you to be accepted the next time you attempt to apply.

Secondly, specialist brokers have the best resources at their fingertips and are ‘in the know’ when it comes to industry information – for example: who has the strictest lending criteria, which banks and building societies are more flexible in lending to self-employed, and the lenders more likely to offer a competitive interest rate.

Information like this will help massively, not only by cutting down the time involved but also by helping to avoid any pitfalls and unnecessary approaches to unfavourable lenders.

By opting to work with an expert, it could help to offer peace of mind, making the process more efficient and smoother to help achieve the best possible result.

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