If you are a ‘Contractor’ you will generally struggle to find a mortgage with most conventional banks and building societies. Most mortgage lenders simply do not understand how you are paid as you do not fit into the standard tick boxes for lenders on a mortgage application, that’s where we can help!
Here is some of the questions our advisers may ask you to gain a better understanding of the criteria hurdles you may come up against –
Have you got a contracting history of 2 years? If not, are you experienced in the sector that you have a contract in?
Is your current contract for a minimum of 3 months or about to be renewed?
Is your contracting history without large gaps in between contracts, for example less than 6 weeks per year?
Now there are some lenders that will offer you a mortgage if you fit their individual criteria and each lender has a different stance on this. In fact, it would be fair to say that every lender has different criteria based on many factors such as the term of the contract, your history in the sector, whether the contract has been renewed previously, if tax is deducted at source, and some lenders may have a minimum income level that needs to be met… the list goes on.
Securing a mortgage as a contractor or freelancer may seem daunting – but at Prestige Mortgage Solutions we have a track record of helping people find the most competitive deal for their circumstances.
And as many lenders now make offers purely on daily contract rates – not years of company accounts – you could secure a mortgage as soon as you start contracting.
As a contractor, you will still get offered the same mortgage deals as a regular employed applicant, the only difference being that the choice of lenders may be slightly more limited. Mortgage deals will still be available as a first-time buyer, home movers or if you are simply looking to re finance your existing mortgage with deals currently available up to 90% borrowing.
Can I get a Mortgage as a contractor?
The short answer is Yes. Our advisers have helped many clients who are Contractors obtain mortgage funding during their careers.
As a company, we have access to lenders that will allow you to borrow based on your contract value and not how you choose to receive your income.
Speak to one of our team, we will contact you at a time convenient to you and conduct an initial fact find to understand exactly what it is you are looking to do and whether we can assist. As a Contractor looking to obtain a mortgage there is certain information our advisers will need to collect before engaging with the relevant Lenders to review your options.
Once you are ready to submit a full mortgage application, Lenders will typically ask Contractors to provide documentation to support the mortgage application (see below).
- Evidence of current contract with 1-month unexpired term at point of application.
- Previous signed contracts covering the previous 12 months.
- Latest 3 months bank statements for your personal and business bank (if ltd) accounts for all applicants
- Proof of consent to let and tenancy agreements for any investment property you may hold.
- Proof of deposit funds (bank statements) if completing a property purchase
Once we have the relevant documents, we can then liaise with the lenders Underwriters to look after your applications.
How are contractors assessed for mortgages?
There are multiple ways a Contractor can be assessed when applying for a mortgage. Your designated adviser will be able to assess your set of circumstances and decide the best route that is most suitable for your needs and requirements:
Professional Contractors – Lenders will typically assess a Professional Contractor based on the underlying contract day/hourly rate. This is regardless of the payment mechanism being used (limited company/umbrella). Quite often, the Lender will need you to have been contracting for a set period or at least have been in the same line of work before assessing you correctly.
Limited Company Contractors – Dependant on how you are running your business, Lenders may be able to assess you on the taxable income such as the salary and dividends you are drawing. In some cases, retained profit can also be considered.
Umbrella Contractors – To the untrained eye an Umbrella Contractor can be mistaken as being employed. The issues arise when it comes to Lenders reviewing Umbrella payslips. All Umbrellas work differently in detailing income as basic, bonus or commission with various deductions also being included. Your dedicated adviser will be able to advise you of the most suitable route to use to ensure the required outcome.
Fixed Term Contractors – In most cases, High Street Lenders will insist upon 6-12 months remaining on your fixed term current contract at the point of a mortgage application. Most fixed term contractors are taxed at source and from a Lenders perspective you will be treated as permanently employed. Advice is key as Lenders treat fixed term contractors in very different ways and choosing the correct Lender is key.
Agency Workers – The way in which Agency workers are assessed varies hugely from Lender to Lender. Often Lenders will want to review your last 3-12 months’ payslips to understand your earnings and produce a usable average for mortgage purposes. Continuity is key when it comes to working via an Agency so you can be portrayed in the best light..
How much of a mortgage can I get as Contractor?
There is no simple answer to this, except to say that for a Contractor Mortgage, you can borrow just the same amount as if you were earning an equivalent PAYE salary based on the value of your contract in most instances. There are even situations in which you could borrow more, as Lenders become more aware of the earning potential of the nation’s contractor and freelancer work force.
Ultimately, the amount you can borrow will depend on the way in which you can be presented to the Lender. As a rule of thumb, if you are a contractor earning £500 per day, a contractor friendly Lender should be happy to annualise your contract rate. Different contract friendly Lenders calculate contract values in different ways but for the purpose of this example we will use the most common which is:
Contract Rate x number of days contracted per week x 46 weeks. Therefore, a contractor earning £500 per day 5 days per week would be assessed on £500 x 5 x 46 weeks = £115,000.
Assuming a Lender is then happy to lend you 4.5 x your income, this could result in a maximum loan being available of £517,5000. Consideration will be made based on family make-up and any other debts to be retained in the background.
Warning – Your broker will also need to factor in things such as:
- Deposit level
- Monthly credit commitments
- Education costs
- Breaks in contract history
- Previous contract rates
- Number of dependants
- Other incomes and outgoings
For a detailed assessment, speak with one of our Specialist Mortgage Consultants.
Which banks will consider a mortgage for Contractors?
Most High Street Lenders now have some form of Contractor Mortgage criteria, including the biggest names in mortgage lending in the UK such as Halifax, Barclays, NatWest, Nationwide and many others.
By using one of our advisers we can ensure that the correct Lender for your circumstances is chosen, and you get the mortgage funding that your contract rate deserves.
Different contractor lenders cater for different contractor issues such as:
Skipton Building Society – Can be very understanding with breaks in contracting history or multiple contracts.
Halifax – One of the original contractor lenders with far more flexibility offered to IT contractors.
Nat West – Standard contractor mortgage policy includes contracts paid in foreign currency provided you are subject to UK tax.
Principality – Are happy to consider contractors for day one in their contracting career.
Accord – Whilst offering a solid contractor policy, Accord can be very generous on their affordability calculations.
It is important to speak with a specialist mortgage broker to assess the options available to you and your individual circumstances.
What size of deposit will I need?
There are no hard and fast rules when it comes to the size of the deposit a Contractor will need. Deposit requirements can start from as little as 5% but are often only available when using a government incentive of some type.
One thing to bear in mind is that mortgage rates improve the larger the percentage deposit you are able to put down. Lenders often offer products based on loan to value (LTV) bandings such as 95%, 90%, 85%, 80%, 75% and 60%.
One of our dedicated Specialist Mortgage Consultants will be able to guide you through the options so you can decide if you want to maximise your deposit or keep some funds back for things like home improvements, repaying debts or a rainy-day fund.
Can I get a mortgage whilst working through an umbrella company?
We have access to a large number of Lenders who understand Umbrella payment structures.
One of the typical issues a Contractor working via an Umbrella company will face is the Lender not understanding or appreciating the breakdown of your income and the deductions taken.
One of our dedicated Specialist Mortgage Consultants will be able to guide you through the options.
Can I get a contractor mortgage with no Ltd company accounts?
Yes. We have access to lenders that will be happy to assist you without company accounts, with borrowing based on your contract value. We can assist from Day 1 of your contract, although each lender will have their own set of criteria that you will need to meet.
One of our dedicated Specialist Mortgage Consultants will be able to guide you through the options.
Do I need to have been contracting for a specific period?
No. We have access to lenders that are happy to assist from Day 1 of your contracting career and assess borrowing based on your contract value, although each lender will have their own set of criteria that you will need to meet.
I’ve had credit problems in the past, will this top me getting a mortgage?
Not necessarily, although it does become more difficult.
One of our dedicated Specialist Mortgage Consultants will be able to review your situation and advise you of any options that are available.
Is it hard to get a mortgage as a contractor?
Yes and no. Our team of experienced Contractor Mortgage specialists have access to specialist underwriting teams within the main banks and building societies, to ensure that your application is assessed on its own merits, considering the way in which you work and how you get paid.
Can I get a mortgage on contract work?
Historically, banks would only ever assess applications based upon either employed or self-employed criteria. Now lenders are waking up to the knowledge of there being a third way, and being able to obtain a Contractor Mortgage based upon your day rate or hourly rate, instead of either payslips or company accounts, neither of which tell the true story of your earning potential.
Can you get a mortgage with a 1-year contract?
Yes. The lenders that we deal with take a holistic view of each application on its own merits, meaning that regardless of the length of your contract, there could be lending options available. Whether you’re on a daily rate or an hourly rate, and whether you’ve been contracting for 2 years or 2 weeks, we are confident that we can help you obtain a Mortgage.
Can I get a mortgage working through an umbrella company?
Yes. With recent developments around IR35, many of our clients have reassessed their remuneration structure, to ensure that it is as tax efficient as possible considering the potential financial impact of being considered inside IR35. We can access Contractor Mortgages for you regardless of whether you contract through an umbrella company, a Limited Company or even directly to your end client.
Can I get a mortgage on a 6 month contract?
Yes. Lenders are now realising that contracting is a far more lucrative and flexible way of working compared to permanent employment, and they have begun to embrace the nature of contracting, rather than turning you away. We can obtain a Mortgage for our clients regardless of the length of the contract.
Can I get a mortgage on a 12-month contract?
Yes. The lenders that we deal with do not penalise you for the length of your contract, as they understand the way in which you work. We can obtain a Contractor Mortgage regardless of the length of your contract, and this is where we utilise your CV to add weight to your application, by demonstrating your working history, regardless of contract.
Do I need to have a permanent job to get a mortgage?
No! In today’s financial climate, Contractors have far more spending power and surplus income than many equivalent PAYE employees. We can obtain a Contractor Mortgage based upon a daily or hourly rate rather than a permanent salary, ensuring that you are not disadvantaged when it comes to rate or choice of lender.
THE MOST COMMON AND ACCEPTABLE CONTRACTOR POSITIONS FOR MORTGAGE LENDING:
Accountancy
Oil & Gas professions
Compliance
Actuarial
Qualified Solicitors, professional engineers and Banker
If you would like to discuss this further with one of our mortgage professionals who specialise in the contractor mortgage market please contact us now.