How to Budget for Higher Mortgage Rates When You’re a Freelancer or Self Employed
The last 12 months have seen a significant change in monthly mortgage payments with the Bank of England’s Base Rate back in October 2021 was 0.10% and currently, the Bank of England’s Base Rate is 3% with the next review scheduled for the 15th of December 2022.
There are a few steps that could prepare you for any mortgage rate increases if you’re self-employed with a mortgage.
1. Find out what mortgage you have and when it expires
The type of mortgage that you have will determine how you’ll be affected by any interest rate rises. If you’re on a standard variable rate or tracker mortgage, your monthly payment will be affected by any changes (future increases or decreases)
If you’re on a fixed rate mortgage, you won’t be affected by any changes as you’re locked with a rate. However, once your fixed product finishes, you’ll be moved onto your lender’s standard variable rate if you haven’t secured another fixed rate product.
2. Work out how an interest rate rise will affect you
Once you know what type of mortgage you have, you’ll be able to find out if any interest rate rises will affect your finances.
As we said in the previous question if you’re on a fixed rate then you won’t be affected by any Bank of England Base Rate changes until your fixed rate product ends.
3. Work out how much you can afford
If your mortgage repayments are likely to increase, work out if you’re going to be able to afford the increase. You can create a budget by listing all your outgoings versus your income and see if there are any areas that you may be able to cut back on.
Additionally, you can re-evaluate your product or service and if it’s reasonable, you could increase your prices a little bit.
If the increases are likely to be in the future, you can start building a savings buffer, so you’ll be able to afford your mortgage repayments when it hits.
You could also look to secure a fixed mortgage product if you’re on a standard variable or tracker mortgage, therefore you’ll have the same monthly repayment amount until the end of your fixed period.
This could save you money if there were any increases in the future as you’re fixed at your rate, however if there were any decreases in the future, you won’t benefit from any decrease. There is also an opportunity to see if there is any fixed rates that are currently lower than your current rate.
If you’re remortgaging, you have the opportunity to secure a new rate up to three months before your current fixed rate product is due to end.
4. Improve your credit score
Improving your credit score can help towards securing a better mortgage product when you’re looking to remortgage. A higher credit score can unlock better rates and more products.
5. Ensure that you’re paid on time
Being self employed, one of the biggest challenges that you could be faced with is being paid on time. Unfortunately, if a customer didn’t pay on time then you could be faced with finding different ways how to pay your monthly mortgage payments; or even worse, missing or late payments could have a negative effect on your credit score.
If you experience late payments from your customers, an invoice finance facility may be something to consider for your business.
Amplo Mortgages and Financial Solutions doesn’t arrange invoice finance however, our sister company Amplo Commercial Finance would be able to help.
6. Have you found the most suitable mortgage product?
Using a professional like a mortgage broker who has extensive knowledge of the mortgage market, they will look to find you the most suitable mortgage product based on your circumstances and requirements.
At Amplo Mortgages and Financial Solutions, we have experience advising on self-employed mortgages and have a strong understanding of what type of income you can use, supporting documents that you can submit to increase your chances of being accepted and we have access to a panel of lenders who specialise in mortgage products for those who are self-employed or freelance.