Most lenders are guilty of grouping contractors and independent professionals as high risk, which in turn makes your monthly repayments far higher. For lenders to decide how much they will lend you when applying for a home mover mortgage; they need to evaluate your earnings to ensure the money can be paid back.
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In order for lenders to decide how much they will lend you, they need to evaluate your earnings to ensure the money can be paid back.
This usually becomes an issue for contractors as your accounts and payslips are unlikely to reflect your full income. The consequence is that the amount you will be eligible to borrow will be less than someone in permanent employment with the same, or lower, income.
If you’re looking for your next home whether it’s upsizing or downsizing, it’s more than likely you’ll already have a mortgage in place. Depending on your product you may be able to port (transfer) your deal to your new home. It’s always worth checking out the latest mortgage rates to see if it is a good time to make the move.
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. You can find out about Umbrella companies HERE
Generally, banks and building societies only lend to those who are considered 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.
In the past, most lenders worked out what they would lend you by typically multiplying your sole or joint income by a fixed number. This is now not the case.
Using an online mortgage calculator can be a great tool with your initial mortgage planning. With an estimation of how much you could borrow planning your deposit, repayments, fees and potential property can become much simpler. We have also put together a handy Q&A with our one of our brokers to help you.
You can find out about your lending power HERE
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