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Lee and Neezam talk to us about mortgages for Contractors.
Are there specific mortgages for Contractors?
If you’re a Contractor, it’s a bit of a minefield when it comes to applying for a mortgage. If you’re buying or switching to a new deal, there are specific mortgages for Contractors. There are specific lenders that understand Contractors a bit better than others.
Lenders that don’t have that same level of understanding may decline applications because they’re not satisfied that there’s been enough experience as a Contractor. The short answer is that there are specific mortgages for Contractors.
Do all Mortgage Lenders lend to Contractors?
Not all lenders lend to all Contractors, there are specific banks that lend to maybe a CIS Contractor or an IT Contractor, or if you’re a daily rate or a fixed term Contractor. You may be a doctor who’s paid through an umbrella company, there are many different types of Contractor, and not all banks cover all areas.
It can be difficult trying to find the right bank to fit your type of contract. Not all lenders offer Contractor mortgages, and then it’s even more specific to the type of Contractor that you are, which is why it’s really important that you seek advice.
How much can Contractors borrow on a mortgage?
It depends on the lender, your circumstances and your income. Even if you take the same income and the same circumstances, five different lenders would provide five different answers to how much you can borrow, because each lender treats their affordability differently.
Online research may show that you can borrow up to five times your salary, but it’s not quite that straightforward, because when you’re a Contractor, you may be on a day rate, weekly rate, or an hourly rate. As an adviser, we’ll get to understand your situation, gather all the evidence we need and let you know which lender will offer you the most for your specific circumstances.
How do Contractors get a mortgage?
Preparation is key for Contractors. Evidencing your income, making sure you have a valid signed contract, and that the terms are still valid. Having industry experience does help, it’s not imperative, but having some experience and maybe a future contract are always helpful.
We can help you prepare for all of that, making sure you understand what experience you need, what contracts to provide, how to apply for a mortgage, and who to go to.
What documents does a Contractor need to apply for a mortgage?
Lenders are going to want to understand your history of contracting, for example, how long you have been contracting, whether your contracts have been renewed, have there been any gaps between contracts etc. Sometimes a large gap can stop you from getting a mortgage.
They will also look at your current contract, how you evidence that and how long you have left. Timing is really key, because if you’re applying prematurely or when you’ve only got a month left on your current contract, there are lenders that you’ll really struggle to get a mortgage from. A broker can really help you get that timing right and help you understand the options available to you and the best time to apply in terms of documents. Keep all of your previous contracts filed, as it will be a lot easier when it comes to applying for a mortgage, as a Contractor.
There are some lenders who may not consider your application if you have three months left on your current contract instead of six, but a letter from your clients confirming continuation of that contract will make a difference. If you’re a day rate Contractor, there are lenders that will multiply that by five to reach your weekly income and then by 46-48 weeks, because they’ll assume you’re going to take the remaining week as leave.
Other documentation would be standard for all applicants, such as ID, proof of address and utility bills for the last three months. Bank statements for your personal business account are usually required. If you trade as a Limited Company, they may want to see your tax calculation and tax year overview from HMRC, as well as your company accounts. Each lender will ask for different things, but we can offer guidance.
How is a Contractor’s income assessed for a mortgage?
It can be assessed in many different ways, depending on the type of Contractor that you are.
If you’re set up as a Limited Company, then it will be your company accounts for the last couple of years. If you’re a day rate Contractor, they may want to see a copy of your contract and see your daily rate confirmed in that contract. If you’re a CIS Contractor, some lenders see you as employed, some lenders see you as Self-Employed.
It’s a case of understanding which lenders will see you in the best possible light to ensure that your mortgage application is successful. We would urge you to seek advice on this as early as possible, as how your income is assessed will differ depending on the kind of Contractor that you are.
How do you strengthen your mortgage application as a Contractor?
Being prepared, keeping a file of every single contract, all of your pay slips etc. This makes it a lot easier for everyone. It means that there are less likely to be any mistakes in the underwriting of your application. Having full transparency and keeping all of your documents for at least the last three years should be more than enough.
Particularly as a Contractor, limiting your time off can help if you’re thinking about applying for a mortgage, and reviewing your credit file, which applies to everyone. As a Contractor, however, they may look at it with more scrutiny in terms of your credit commitments being paid on time etc.
What about Contractors buying with another person?
If you’re a Contractor buying with someone that’s employed, most lenders are going to be more comfortable with that income, the bit that’s really going to restrict your options is going to be the Contractor income. It’s therefore important to make sure you are approaching the right lender for your circumstances. We help a lot of Contractors, but whether you’re buying on your own or buying with someone else won’t really make a huge difference as to which lender you approach, because your options are limited based on your situation.
It’s never too early to get on the phone and seek advice about which lenders would consider you. Preparing as early as possible will give you more chance of success with your mortgage application.
We have helped brand new Contractors with no experience of contracting before, but a strong contract and experience in industry, and who probably would have been declined by their bank to successfully obtain a mortgage. Relationships that we have with business development managers of independent lenders can sometimes open up flexibility in their lending policies, where a bank might decline under the same circumstances nine times out of ten.
So whatever your circumstances, we’ll have that discovery call with you and help you build a plan, and prepare to be mortgage ready.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Some buy to let mortgages are not regulated by the Financial Conduct Authority.