Contractor Mortgage Guide 2018

Getting a mortgage as a contractor has become easier.

A contractor 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.

Before arranging your contractor mortgage, there are many questions that you will want to answer. Of course, you can get a contractor 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 contractor 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.

When lenders assess a contractor mortgage, they will want to verify income by seeing two to three year’s worth of accounts or tax returns. Lenders have not kept up with changes in the labour market, and their criteria, in many circumstances, fails to accommodate for the growing ranks of independent professionals.

Umbrella company contractors will find that many of their expenses will not be considered when calculating income. Limited company contractors will experience a similar problem, as any money retained in the company, for tax purposes, will also not be considered. Both ways of operating are likely to lead to a shortfall in borrowing.

Let us say you are able to overcome this first problem, you will then face another shortly after. Generally, banks and building societies only lend to those who are considered a low risk, and contractors just do not tend to fall into this category. 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 contractor 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 a case is a fundamental aspect for contractors, to ensure they are able to borrow the funding that they need. The application has to 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:

  1. Proving full income in a suitable way to support the level of funding required.
  2. Proving long-term income, demonstrating that the monthly payments will still be paid when the current contract comes to an end.

 

Overcoming the Hurdles

A specialist contractor mortgage broker can help with the process as they will have a thorough understanding of each contractor mortgage lender and how they work. These brokers have designed bespoke contractor based underwriting with many lenders, which means contractors are able to avoid the traditional frustrations.

This underwriting ensures that your income will be assessed using a multiple of your gross annualised contract rate. This figure will be used to calculate how much you can borrow, ensuring this is based on your true earnings.

Essentially this means you will be able to secure a larger contractor mortgage because the tax saving methods that you use will no longer cause you to be penalised during affordability testing.

The contractor mortgage broker will be able to present your circumstances upfront to the most suitable contractor- friendly lender.

Any concerns or worries about the way you work can be eliminated at the first possible instance, leaving your credit rating unmarked. To overcome the income longevity issue, your contractor mortgage adviser will inform the lender of your skills and experience demonstrating your ability to secure future contracts.

There are two essential pieces of documentation used by specialist brokers to ensure contractors avoid any issues relating to an affordability:

  • A copy of your current contract
  • Any up to date copy of your CV


The two items above are only required when you do not have trading accounts or if it is difficult to provide us with copies.

The contractor mortgage broker will be able to present your circumstances upfront to the most suitable contractor- friendly lender.

 

Top Tips for getting a Contractor mortgage

Approach a Specialist Broker

The majority of lenders have little understanding about contractors and use procedures which are not suitable for these individuals. A specialist broker uses bespoke underwriting which enables contractor 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.

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 if you want to make an offer that is under what your certificate says. You will be in a stronger position to negotiate if the estate agent does not know how much you can afford.

 

We're here to help

CMME have been providing specialist contractor mortgage broking to contractor clients 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.

We are the preferred partner to leading accountants and umbrella companies, and many lenders choose to work exclusively with us; as a result, our clients have access to more contractor mortgage products and rates, and can borrow up to 5 times their estimated annual contract rate.

Next steps

To get more information or to speak to our expert team contact us on

01489 555 080

or email us at enquiries@cmme.co.uk 

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