June 24th, 2020
Many things have been postponed due to the coronavirus pandemic and one of them is the tabled amendments to IR35 legislation. The shift in focus to employers rather than contractors has been delayed until April 2021. This is helpful to contractors for many reasons but particularly due to the fact that for many it provides the chance to maintain their current role or to secure another on more lucrative terms. The other benefit of the delay is that it gives contractors and companies more time to adjust and prepare for the changes. The delay can also help contractors with mortgages too.
Applying for a mortgage may be a good idea before the changes
If you are considering getting a mortgage now could be the ideal time to do so if you expect your income to decrease once you begin working within IR35. Providing evidence of regular income is one of the first items that potential lenders will review for a contractor. Checking your credit history and staying up to date with your credit score is also important. Reviewing this regularly will allow you to see where you can improve your profile, which is essential to providing evidence that you are a reliable borrower.
We recently commented on how the mortgage market is behaving in the current climate, which you can read here
Consider your current lifestyle and your long-term plans
If you are planning to buy a new home, potentially upscaling the size of the loan, you should consider securing your mortgage now. Currently, the options for a contractor to secure a mortgage have never been better, provided they have good credit and a decent deposit. However, when IR35 changes come into place it could affect a contractor’s ability to secure their desired loan. As tax changes come into place and incomes levels are restricted, a reduced level of earnings will impact the volume of lending available.
What are mortgage lenders going to look at when considering contractors?
When IR35 legislation is rolled out next year, contractors will no longer determine their working roles. Instead, companies will decide whether or not to deem their workers ‘employees’ or to retain them as contractors. This drastic change in working will affect contractors and force many to consider whether taking an employed role is the simpler choice. If they’re deemed as employees, the financial impact of paying income tax along with national insurance will be noticeable. The bottom line is that less income will result in a lower level of borrowing, forcing many people to re-evaluate the size of the property they can afford.
You can take a look at our guide for first-time buyers here
Therefore, we suggest that contractors secure a mortgage before the changes are made. Some lenders were beginning to see a change in circumstances and employment type as an additional hurdle to consider when underwriting a mortgage application. Providing a consistent lending profile provides a borrower with the best chance of a lender approving their mortgage application.
Whatever your circumstances are CMME are here to help with the mortgage process. Our team works hard to provide bespoke solutions to your personal circumstances. If you are a freelancer, contractor or self-employed contact CMME today.