A matter of interest: A self-employed musician’s guide to mortgages

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It was the early 1990s and this writer was at his local bank. As a new freelance journalist and a not-so-new jobbing organist, keeping on top of the flow of income was a major priority. Inevitably, the conversation turned to income protection insurance.

‘How much do you expect to earn this year?’ asked the advisor. ‘I really don’t know,’ I answered. That was the plain truth... and a deadly silence followed. Sure, there were self-employed people, often running well-established businesses, but short-term contracts of employment were something of a rarity compared with today. The ‘zero-hour contract’ had not yet been invented, and it was unusual to come across, for example, a freelance lawyer or medic. There was also the fact that, thirty-odd years ago, many financial institutions did not fully understand self employment or freelancing.

Things, of course, have since changed, but the constant in everyone’s lives is the requirement of a roof over one’s head. That can be through a rental property, though it’s probably true to say the vast majority of people in the UK see property ownership as the better option. Where, though, does that leave musicians, especially freelancers?

David Carnac has been a mortgage broker for 35 years and deals primarily with musicians. He grew up around musicians, trained as a professional musician himself and counts many musicians among his friends. ‘The vast majority of my clients are freelance or have some element of freelance,’ he says. ‘It’s not impossible to get a mortgage. But you really have to be ready and prepared. If you are an employee of a company, you’ve got a payslip, you’ve got a salary, and you might also have some variable income. Importantly, the bank staff will understand your situation because it will replicate theirs.

‘The complexity of most musicians’ incomes is the number of income streams. A typical client of mine will have their self employment, which normally would be their gigs and maybe some teaching, but they may also have some employed work. They might go and teach in a particular school, for instance. Those teaching positions, whether in a village junior school or as a professor at the Royal Academy of Music are typically zero-hour contracts and that is something we have to work around.’

Stacked odds: There are no mortgages tailored to the self-employed sector ©Adobe Stock

There is no specific mortgage tailored to the self-employed sector any longer. The self-certification mortgage that allowed an applicant to declare their income without proof was banned in 2014, because there were worries that customers were being approved for mortgages that were beyond their reach.

Carnac explains that the mortgages he deals with are more complicated and, crucially, bespoke – a task that not all brokers would necessarily undertake.

‘What you have to do is find a property and put in a mortgage application, in short,’ he says. ‘We frequently start the process with an enquiry from someone who has been referred to me through word of mouth. Quite often, these will be people thinking about buying a property, but who don’t know where to start. Talking to someone who is prepared to take the time to get to know a client is the first step.

‘You are going to need a track record of income. That is usually defined by the lender and typically, though not exclusively, it will be a couple of years’ accounts. You really need to be stable as you are taking on the biggest financial commitment of your life and you will take it on over 25, 30 or however many years you choose. I want to be comfortable that a client understands that this is a long-term commitment. Lenders will also feel the same. I don’t have a meeting with a client if I do not think that they meet my criteria, although I will happily talk to someone to see if we feel they will, and often potential clients are pleasantly surprised with what can be obtained.’

Experian, the data analytics and consumer credit reporting company, advises saving the biggest deposit possible, but it can be as little as 10 per cent. An accountant is advisable although self-assessment is acceptable. Proof of identity and proof of address will be necessary as well as bank statements, evidence of savings and HMRC’s SA302 forms (the document showing the income tax calculation for the year and the evidence of earnings submitted). Typically, lenders like to see SA302 forms for three years, though if a person is newly self employed, it does not mean that a mortgage is automatically beyond their reach.

“Talking to someone who is prepared to take the time to get to know a client is the first step”

‘I make it very clear about the risks people face,’ Carnac explains. ‘With a rental contract, if you can’t pay your rent, you can just walk away. If you buy a property, you put your money into it. If you can’t pay the mortgage, you’ll get repossessed and that will completely screw your client file for some time. That’s quite apart from the stress that ensues and the fact it is really not a good thing to happen to anyone.

‘But that really should not put you off doing something that the majority of people would accept as being a good thing. They see that home ownership is better than renting. Sure, renting works on a temporary basis but purchase is better for the long term.’

An obvious risk is that business dries up. Then what?

‘You have to earn enough money to pay the mortgage. And if you don’t pay your mortgage, you will be repossessed,’ says Carnac. ‘It’s much the same as being evicted if you do not pay your rent. That’s why the track record of work is something that a lender looks at closely.

‘If, as sometimes happens, people get sick or they have an accident that stops them from being able to work, they must have a contingency plan. I make no qualms about it. I will talk to clients and potential clients about these events and the ramifications. We will strongly advise you take out adequate sick pay, death and critical illness cover if appropriate. Yet, having said that, if work just dries up, there is not much you can do about it.’

Carnac is emphatic that a professional musician should seek out advice from someone who understands the world in which they make a living and who can communicate that understanding to a lender.

‘Several times I’ve had a conversation with a musician that starts along the lines of, “You probably can’t help me. When I saw my – insert name of financial institution – mortgage advisor they said they could not do it, but a friend or colleague said I should give you a call”,’ said Carnac. ‘Actually, they could get the mortgage they wanted. If that mortgage advisor doesn’t understand the musician’s situation or – perish the thought – can’t be bothered with the extra bit of work, then you probably won’t get the mortgage. You need an adviser who understands and has access to a wide range of lenders. At the last count, I have around ninety lenders I can go to. And yet, it will often be the case that there is only one lender who will take on the case.’

Presently, Carnac has seen an increasing number of people seeking to remortgage their properties. A number of clients are coming off fixed-rate deals that are a little over one per cent and their rate is rising to five-plus per cent, something that makes a very large dent in monthly income.

‘The difference between 1.5 per cent and 1.7 per cent would not be that much,’ notes Carnac, ‘But the difference between 1.7 per cent and five percent is a big change.’

A mortgage is a huge financial commitment and finding a good deal could save a client several thousand pounds over the lifetime of the mortgage. To put rate rises into context, a difference of 0.5 per cent could add around £2,000 to three years’ worth of repayments on a £200,000 mortgage. You should always bear in mind that your home may be repossessed if you do not keep up repayments on your mortgage.

For most musicians, that means adding a significant number of extra performances or teaching for many more hours just to make up the shortfall. And, for people who are already working exceptionally hard, that’s not really a feasible option.