Ever wondered how to go about buying a house? Getting a mortgage can be tricky for freelance musicians - with variable incomes from sources that your bank may not recognise - but it's definitely possible.
For the first instalment of this 3-part blog series on musician's finances, I talked to three financial experts, Adam Liddelow, David Carnac (former pro musician and specialist in musician mortgages) and Claire Sweet (amateur musician and specialist in musician mortgages), about how to get a mortgage.
The first step is to gather a suitable deposit, starting to save as soon as you earn enough money to put some aside each month. 5% deposits are possible through the government Help to Buy scheme – otherwise, you will need a minimum of 10%. [So for a £200,000 house, you'll need at least a £10,000 (5%) deposit.]
Your deposit amount, rather than your income, will dictate what interest rates are available to you – so the bigger your deposit, the better your rate. And don't forget about stamp duty: if you are buying your first property, the stamp duty in 2016 on a £300,000 property is £5,000. [Stamp duty is a tax owed on the purchase of property above a certain threshold.]
As most freelance musicians are self-employed as sole traders or have formed their own limited company, most lenders will want to see two years’ worth of audited accounts before they would be willing to consider your mortgage application. You can expect to be able to borrow around 4.75 times your income. If you have any existing credit commitments or debt, this multiple will reduce accordingly.
Finally, it is important to identify what state your credit file is in. It is always a good idea before embarking on your property search to request your credit file from a credit agency. This will help to identify if you have a good credit score, and ensure there are no previous late payments or defaults that may hinder your application. [Check out these tips from Experian on how to improve your credit score.]
As tempting as it can be to want to spend the money when it starts coming through, those clients of ours who have achieved their housing aspirations tend to be those who save first rather than spend first.
Lenders can get confused by the multiple sources of income that freelance musicians often have. Keep or get your accounts up to date and keep your payslips if you do have PAYE earnings as often these earnings are more often than not "zero hour contracts", which require careful scrutiny. [Pro tip - Encore Pay now provides invoices for your gigs!]
Musicians tend to have variable income, which can make financial planning a little more tricky than for a salaried employee with a regular income. That being said, lenders are increasingly more open-minded on types of income as long as you have the paperwork to prove it.
The key thing is sitting down with your Financial Adviser and talking about the type of property and likely purchase price, so that you can work backwards both to save the deposit that you need and ensure that you accounts reflect the necessary level of income.
Bottom line? Even in a tight housing market, it's definitely possible to buy a house. Start putting aside money for a deposit now, and take some time to think about your housing goals. Good luck!
Check out the other blogs in this series:
Adam Liddelow works at Liddelow Financial Services, an Isle of Wight and London-based advisory firm, providing expert wealth planning for private and commercial clients in the UK.
David Carnac entered the Financial Services industry in 1987 following a brief career as a professional musician after graduating from the Guildhall School of Music. He gained extensive industry experience during the following ten years before setting up his own company, David Carnac & Co., an independent practice totally focused on meeting the requirements of his clients. In 2017 he celebrates twenty years in business and twenty-five years since arranging his first mortgage for a musician client.
Claire Sweet is a Financial Adviser and amateur musician who has been helping musicians organise their life and their finances for more than nine years, using a friendly but sensible approach to provide advice to clients of all ages and backgrounds. Further details can be found at www.peacetogether.co.uk.
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