The Hong Kong and Shanghai Banking Corporation (HSBC) is one of the largest banking and financial organisations in the world. They have over 60 million customers from over 80 countries and are a major supplier of mortgage funding in the UK. Many contractors have already built a business banking relationship with them.
HSBC mortgage rates are consistently market leaders but as far as contractor mortgages are concerned, they are not rated highly. Unfortunately the lender has little understanding of how contractors are paid and this can lead to them being penalised.
A HSBC contractor mortgage is assessed under very minimal criteria; there are only two categories, “employed” or “self-employed”. Problems are likely to be caused if the contractor is using any type of umbrella or payroll service, as HSBC underwriting is not set up to understand, nor assess this type of structure. As a result of this, a shortfall in funding or a declined application is likely.
If the contractor is working via a limited company set-up, the lender will assess the income via the latest three years trading figures, with an average of salary and dividend draw being used to define earnings. HSBC has little flexibility when it comes to any type of “declining income” via the salary and dividend draw, when previous years are compared to more recent ones. The result of this will most likely be an adverse lending decision.
Income multiples tend to be 3 – 3.5 times income, which is at the conservative end of the mortgage market. The HSBC distribution strategy for their mortgage lending is to very much cherry-pick the type of borrower they lend to, which is usually to the detriment of most contractors.
Although HSBC offer a great product range, it is only available to a select few. There are many other options to consider when looking for a ‘contractor friendly’ mortgage, including Halifax, Nationwide and Clydesdale Bank, to name a few.
CMME recommends you speak to a professional expert that specialises in mortgages for contractors to establish your needs and circumstances before approaching a lender. They will be able to minimise the risk of an adverse lending decision by assessing your situation, discussing your position in advance with the lender and ensure everything is correct before the application is submitted.
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