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

In the evolving UK workforce, the rise of self-employment and the digital nomad lifestyle has reshaped how we work and approach major life milestones, such as buying a home.

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

This article dives into the challenges faced by those who’ve embraced the flexibility of self-employment or the digital nomad lifestyle, or even those who are employed and are digital nomads. It offers 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 individuals has increased significantly and now accounts for 15% of the workforce, rising from 3.3 million in 2001 to 4.33 million in 2024. However, these figures are subject to change, and it is advisable to check the latest government data for more precise numbers.

There is no reliable data on the number of self-employed people who are digital nomads, but the number is increasing worldwide, with 16.9 million people in America describing themselves as digital nomads.

Since the recession, the number of self-employed workers aged 65 and above has nearly tripled, while the number of self-employed individuals aged 16 to 24 has doubled, with 174,000 people classified as self-employed as of 2022.

The demand for mortgages from self-employed and contract workers is growing faster than traditional employees, which has led lenders to loosen borrowing criteria to include those working in the ‘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.

While the recession may have initially pushed people toward self-employment, the online world continues to fuel this trend, making freelance work a more flexible and attractive option in today’s workforce.

Although the same mortgage opportunities should be available to all, sadly, this isn’t always the case. And while 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 undoubtedly be a more complicated process – mainly because lenders are less likely to take a risk on those with fluctuating incomes.

A common issue self-employed people face when applying for a mortgage is having only one year of accounts. Most lenders require two or three years of accounts, although some specialist lenders may consider applicants with less.

It’s important to note that lender criteria can vary widely, and different lenders may have their policies regarding income verification, especially for digital nomads. Understanding these variations with a broker can help identify the best options.

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, as it will help open up a larger choice of lenders.

Potential lenders will assess your business profits and may request evidence to support predictions that you’ll earn similar sums in the future. They may also ask for information about your business contracts or clients.

Remember that different lenders have different standards for verifying self-employed income, and digital nomads with fluctuating incomes might need to provide additional documentation or proof of future contracts to satisfy certain lenders.

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 a limited company director.

• Self-employed: 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.
• Partnerships: Most lenders treat business partners similarly to self-employed borrowers. They typically look at net profit share when calculating how much you can borrow.
• Directors of limited companies: Your total income as a director of a limited company may consist of a combination of basic salary and dividend payments. Lenders will usually consider both these elements of your income, although exactly how they treat them can depend on your share of ownership.

Use an accountant

How your accounts are presented could significantly impact how much you can borrow.

Submitting proof of your accounts using the required HMRC documents from a self-assessment tax return is possible. Some lenders will happily 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 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 considered when a lender assesses your figures.

Gaps between contracts

While there are many advantages to being self-employed, one of the top benefits is the flexibility to manage your schedule. You can fit your business or work around your life commitments as you see fit.

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

Lenders will seek 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 between jobs.

Mortgage Application Checklist for Digital Nomads

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

1. Organise Financial Documents

• Gather at least two to three years of complete accounts to demonstrate 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, which 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. Minimisƒe 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 how they don’t affect 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 specialised broker can guide you towards lenders with friendly terms for non-traditional employment models.

6. Review Your Spending

• Review and reduce non-essential spending in the months leading up to your application.
• 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-organised and presented in the best light.
• Ensure a certified or chartered accountant signs off your accounts, as some lenders may require this.

Get advice from the experts

There are two things to remember when deciding whether to seek help from a mortgage expert.

First, if you were to apply for a mortgage on your own and the lender decided 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.

Opting to work with an expert could offer peace of mind, make the process more efficient and smoother, and help achieve the best possible result.