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Are there mortgages designed for contractors?
Wondering if there are mortgages designed for contractors? The short answer is “yes”.
We’re CMME, the specialists in helping contractors secure mortgages. Since 2004 we’ve been helping contractors, freelancers, consultants, and small business owners navigate the mortgage process and get the best possible deal. If you have any questions about getting a mortgage or want to discuss your own circumstances, call our mortgage advisors for free advice.
Prepare for your contractor mortgage
A contractor mortgage is likely to be the biggest financial commitment that you will ever make. The process can be long and daunting, but one thing it doesn’t have to be is difficult.
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 haven’t kept up with changes in the labour market, and their criteria, in many circumstances, fails to accommodate for the growing ranks of independent professionals.
If you’re an umbrella company contractor, you’ll find that many of your 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 less borrowing power.
Furthermore, banks and building societies only lend to those who are considered a low risk, and contractors and professionals don’t always fall into this category. Lenders worry that these individuals will struggle to afford their monthly payments if their work is unstable, or when their current contract comes to an end.
How to get the right contractor mortgage
Although it might seem impossible, contractors can obtain competitive mortgages. It’s even possible for you to secure funding with lenders that may have previously turned you down. However, these lenders need direction from specialist brokers.
Presenting a case is a fundamental aspect for contractors, to ensure you’re able to borrow the funding that you 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.
Our specialist team can help you:
- Prove full income in a suitable way to support the level of funding required.
- Prove long-term income, demonstrating that your monthly payments will still be paid if your work situation changes.
Overcoming the hurdles
A specialist mortgage broker for contractors 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 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, or by looking at your net or operating profit if you’re self-employed. This figure will be used to calculate how much you can borrow, ensuring this is based on your true earnings.
Essentially this means you’ll be able to secure a larger professional 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 lender.
Any concerns or worries about the way you work can be eliminated early on, leaving your credit rating unmarked. To overcome the income longevity issue, your mortgage adviser will inform the lender of your skills and experience demonstrating your ability to secure future contracts or revenue if you’re a business owner.
Top tips for sorting out your professional mortgage
Approach a specialist broker
The majority of lenders have little understanding of contractors and use procedures which are not suitable for these individuals. A specialist broker uses bespoke underwriting which enables mortgage funding based on contract rate alone.
Improve your credit rating
Lenders have become increasingly reluctant to lend, and often a decent deposit and income is not enough to guarantee a professional 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 a professional mortgage advisor
Ask your mortgage adviser to amend your Agreement In Principle if you want to make an offer that is under what your certificate says. You’ll be in a stronger position to negotiate if the estate agent does not know how much you can afford.
Ready to talk mortgages?
We hope you’ve found this guide useful. The key thing to remember is that you stand a good chance of getting a mortgage if you can demonstrate a history of earning as a contractor or professional. Even if your records are limited, there may be ways to work around the gaps. To ensure you get the best possible deal, talk to a mortgage expert who understands the unique factors affecting contractors.
Want to talk to one of our mortgage experts? We offer free, impartial advice, a free initial consultation, and our team is available Monday to Thursday, 9am-7pm and Friday, 9am-5.30pm.