IT Contractor Mortgage
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IT Contractor Mortgage
Lee and Neezam talk all about mortgages for IT Contractors.
What is an IT contractor mortgage and how do they work?
There aren’t specific mortgages just for IT contractors, but there are specific lenders that are more favourable towards this line of work.
There are various different ways banks can assess an IT contractor. The main two approaches are to view you as employed on a fixed, short-term contract, or as self-employed. You might also be running through an umbrella company or a limited company. Different contractors may be paid on a day rate, or weekly or annually.
Every bank is different in how they assess your income and some may lend you more than others. They will also have different criteria around how long you’re required to be on a contract, how long is remaining and the length of experience you have.
Are there specialist mortgages for IT contractors and how many lenders offer these?
There are quite a lot of lenders that offer contractor mortgages. There’s an understanding across the mortgage industry that IT contractors often have good earnings and regular contracts. There’s also good insight into how you operate so, although it’s not quite as simple as getting a mortgage as an employee, it’s less complex than being seen as purely self-employed.
It always comes down to risks to the lender and how easily you will be able to repay the mortgage. We need to satisfy the lender that your contract’s going to be renewed and that you’ll stay in secure employment. That will make them more comfortable that the mortgage is affordable and they can lend you what you need.
What criteria do you need to meet for an IT contractor mortgage and how do you prove your income?
This is generally the challenge with contractors. For IT contractors, some lenders require you to have a certain length of history or experience within a particular role. There’s a lot of different criteria depending on how you are set up as an IT contractor, how you’re paid and the type of contract you’re on. You may need to have six months or so left before your current contract ends, or you may need a new contract lined up for when that finishes. You often need at least 12 months or two years’ experience in contracting or the IT field generally.
In terms of how you prove your income, there are a number of different ways. You may need to share a copy of your contract to evidence your daily rate and how long the contract is for. If you’re employed on a fixed contract you may need payslips. If you’re self-employed and have your own limited company they may require company accounts – typically 12 months to two years as a minimum.
The challenge for an IT contractor is understanding which banks are more favourable for your specific situation.
How can I prepare if I’m looking to get a mortgage?
That paperwork is really important, so when you’re ready to buy a home, start keeping those payslips and contract details. You will also need utility bills and photo ID, so renew your passport, make sure you can find your driving licence and you have all your company accounts in order.
How does an IT contractor mortgage work if I have a limited company?
A lot of contractors will have either an umbrella company or a limited company. In this situation most lenders will assess you as self-employed. So rather than looking at day rates or pay slips, you’re seen as a limited company director.
Lenders will ask for your accounts – usually two years or more. They’ll look at your salary and dividends and your tax calculation summaries from your self assessment.
Some lenders will use a portion of your net profit as well, which can really help with boosting affordability. There are a couple of lenders that will still allow you to use a day rate if you can evidence it with contracts and invoices.
This is where a broker who really knows this area well can make a big difference. If you’re someone that only draws a minimal salary from the business you might leave a lot of net profit in your limited company. That’s a lot of potential income that some lenders won’t use to assess you for mortgage borrowing.
Meanwhile, a lender that will look at your day rate is assessing you on 100% of your gross income and treating that as an employed salary. That can give you a much bigger mortgage.
How do I apply for a mortgage as an IT contractor?
It’s a normal process in terms of applying – the same as it would be for a first time buyer or a home mover. The difficulty is finding the most suitable bank for you. There are just so many variables that make it a minefield if you’re trying to do this on your own.
The best course of action is to seek advice as early as possible – ideally, before you’ve started looking for a home. It’s not as easy to get a mortgage as an IT contractor, because it’s all about understanding the different banks and how they will view you.
How can a mortgage broker like Rebus help?
So much comes down to preparation. If you approach us, we will book in a Discovery Call where we will make sure we really understand your situation. We’ll get the information we need and give you an idea of what documents will be required.
We can then get you an Agreement in Principle with the most suitable lender. That will give you confidence before you start looking for a home. You’ve got a mortgage pre-approved, you know what the monthly payment’s going to be. You have an understanding of the process and how much you can borrow, so it puts you in a really strong position once you find that property, especially at the moment.
The property market is so competitive right now, so you need to act fast. We can get the application in and get everything moving forward quickly.
The alternative is that you’re not aware that it can be more difficult to get a loan as an IT contractor. Someone tells you you can borrow around four times your income, so you use that as your property budget. You find a house that you love – then find you get declined, you can’t borrow what you need or you haven’t been trading long enough. Then you lose that property to another buyer.
So get prepared, have a chat with a broker as early as possible and you’ll be protected against that kind of disappointment.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.