The majority of lenders are guilty of grouping contractors and independent professionals as high risk, which in turn makes your monthly repayments far higher. 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.
The majority of lenders are guilty of grouping contractors and independent professionals as high risk, which in turn makes your monthly repayments far higher.
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.
CMME will ensure your application is dealt with by lenders who understand your entrepreneurial way of working and appreciate the demand for your skills in future contracts. Our expert consultants can secure funding at competitive rates that are not possible to access by approaching a lender directly.
What’s in the guide?
- What is a home mover mortgage?
- How much could you borrow?
What is a home mover mortgage?
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 transfer (or port) your deal to your new home.
If you are able to port your current mortgage then you
will still need to reapply for your mort- gage and go through affordability
checks, you will also have to pay for valuation, legal fees and stamp duty.
It can be harder to get approved for the same mortgage if your financial situation has changed, especially if you’ve become a contractor since your first mortgage.
When lenders assess a contractor for mortgage affordability without specialist underwriting procedures in place, they will want to verify income by seeing two to three years’ worth of accounts or tax returns. As many lenders have not kept up with changes in the labour market, their criteria will often fail to accommodate the growing ranks of contractors.
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. Things will also change if you need to borrow more money, you will have to meet the lenders affordability for this and possibly pay a fee.
You may choose to take out a new mortgage with a new lender if they’re offering a more competitive deal for you, again you may have to pay an early repayment charge if you’re moving before your deal is up.
How much could you borrow?
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.
Currently, most lenders look at a full financial picture, including:
- Your monthly pay
- Income from investments
- Income from pensions
- Income from child maintenance or grants
They will also look at your available credit, how much spare cash you have each month and other bills/debts etc.
This information will allow a lender to develop a good understanding of how much you will realistically be able to pay back each month, thereby helping them to calculate how much they will be willing to let you borrow.
Make sure your spending habits are allowing you to live well within your means, and if you’re able to pay off any unsecured loans and credit cards, as they can impact your borrowing potential.
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.
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