Contractor Mortgage Guide 2018
Getting a mortgage as a contractor has become easier.
A mortgage is likely to be the biggest financial commitment that you will ever enter in to. The process can be long and daunting, but one thing it does not have to be is difficult, we can help with this. Before arranging your mortgage, there are many questions that you will want to answer. Of course, you can get a mortgage broker on board to guide you, but it will be up to you to make the decisions.
- How much can I realistically afford?
- What type of mortgage should I choose?
- How does the process work?
- What obstacles am I likely to come across as a contractor?
These are just some of the questions that you will want to answer.
Our guide explains the different schemes available.
What’s in the guide?
- What happens when contractors get a mortgage?
- How to Get the Right Contractor Mortgage
- Overcoming the Hurdles
- Concerns about the way you work
- Top Tips for getting a Contractor mortgage
- How we can help
What happens when contractors get a mortgage?
When lenders assess a contractor mortgage without specialist underwriting, they will want to verify income by seeing two to three years’ worth of accounts or tax returns. As lenders have not kept up with changes in the labour market, their criteria will fail to accommodate the growing ranks of independent professionals.
Umbrella company contractors will find that many of their expenses will not be considered when calculating income if the lender understands the concept of an umbrella company at all. Limited company contractors will experience a similar problem, as any money retained in the company, for tax purposes, will also not be considered. Both methods of operating are likely to lead to a shortfall in borrowing.
Generally, banks and building societies only lend to those who are considered a low risk, and contractors are regarded as high risk. The reason being is that lenders worry that these individuals will struggle to afford their monthly payments when their current contract comes to an end.
How to Get the Right Contractor Mortgage
Although it might seem impossible, contractors can obtain competitive mortgage funding. It is even possible for them to secure funding with lender’s that may have previously turned them down; however, these lenders need direction from specialist brokers.
Presenting the required information correctly is a fundamental aspect for contractors, to ensure they can borrow the funding that they need. The application must be presented in such a way that the lender looks at the borrower and sees them as a good risk.
There are two problems that need to be tackled:
- Proving full income in a suitable way to support the level of funding required.
- Providing proof of long-term experience within an industry to show future employability, demonstrating that the monthly payments will still be paid when the current contract comes to an end.
Overcoming the Hurdles
A specialist mortgage broker can help with the process as they will have a thorough understanding of contractors and contractor friendly mortgage lenders. These brokers have designed bespoke contractor-based underwriting with many lenders, which means contractors are able to avoid the traditional frustrations.
This unique underwriting ensures that your income will be assessed using a multiple of your gross annualised contract rate, using this figure to calculate how much you can borrow based on your true earnings.
Essentially this means you will be able to secure a larger mortgage than if traditional underwriting was used as you are no longer penalised for using a tax efficient method of earning. The mortgage broker will be able to present your circumstances upfront to the most suitable contractor- friendly lender.
There are two essential pieces of documentation used by specialist brokers to prove longevity and affordability to the lenders:
- A copy of your current contract
- An up to date copy of your CV
These items will allow specialist brokers to approach lenders even with an absence of traditionally requested self-employed documents such as trading accounts.
Top Tips for getting a Contractor mortgage
Approach a Specialist Broker
Most lenders have little understanding about contractors and use procedures which are not suitable for these individuals. A specialist broker uses bespoke underwriting which enables contractors to obtain mortgage funding based on contract rate alone.
Get a Good Credit Rating
Lenders have become increasingly reluctant to lend, and often a decent deposit and income is not enough to guarantee a contractor mortgage.
A spotless credit rating can increase your chances of being accepted, obtaining a copy of your full credit report can help by checking all the information shown is correct and up to date.
Prepare Your Documentation
Update your CV and obtain a copy of your contract. This way your broker will be able to use them to avoid affordability issues.
Use Your Contractor Mortgage Advisor
Ask your contractor mortgage adviser to amend your Agreement in Principle to your offer amount, this will prevent estate agents pushing prices up for their vendor. This will put you in a stronger position to negotiate as the estate agent will not know how much you can afford.
How we can help
CMME have been providing specialist mortgage broking to contractors across the UK since 2004. As an organisation, we are proud of the fact that we have campaigned for a more flexible approach from lenders and providers when assessing clients who choose to work in a more entrepreneurial way. We use our specialist knowledge and bespoke service to ensure our clients have the best possible experience, whilst saving time and money.