Can I get a mortgage as a PAYE Contractor or through an umbrella company? Many contractors opt to enlist the services of an umbrella company to manage their contract income, due to the ease that this provides in dealing with the processing of their pay and tax. Much like a PAYE process, the administration of such a process is less time consuming than securing the services of an accountant, as the companies dedicated team of tax experts will manage your finances to make sure that your pay is efficiently processed in a reasonable time frame.
What are the issues when using an Umbrella Company or applying for a PAYE mortgage?
While this option provides benefits when dealing with your income, it can also present potential issues when attempting to raise funds for a mortgage. During the process of completing mortgage underwriting, you are likely to be asked for evidence of your income. Many contractors that have experienced this process will be aware that lenders do not fully understand the process used by the umbrella company to manage the income.
This often leads to a request for three months’ payslips and a P60 to be provided.
The problem with this is that a lender will only take into account the basic pay received and evidenced on the payslip. Some umbrella firms choose to split the regular income to also include partial payments, such as holiday or commission payments.
Mortgage lenders will often discount these payments when assessing your affordability and therefore the income used for assessment will not include the full pay received. This can dramatically decrease the level of lending available when applying for a mortgage.
So where does that leave you when attempting to secure a mortgage?
The good news is there is another approach available that will allow you to utilise all of your income to help with your application.
At CMME we have built longstanding relationships with many UK lenders, which has allowed us to create our own innovative process to secure mortgage funding for contractors. Using this bespoke process means that we can not only help you to raise the borrowing you require for a mortgage, but it also provides you with access to high street lenders and therefore gives you the range of low-level interest rates that would normally be unavailable when looking at a PAYE or contractor mortgage.
How do we prove your income?
The process we utilise is two-fold. The first step is to provide sufficient income evidence for a lender, to confirm that your affordability range is higher than the salary and dividend income would initially suggest is the case. Rather than treading the usual path of supplying your payslips, we have agreed with lenders that we can supply a current contract in order to provide income evidence.
The method used to determine your personal income varies from lender to lender, but in essence we will agree with an underwriter a level of income that is deemed to be acceptable for you, by annualising either your hourly or daily rate of pay. By doing this, we are able to provide you with the means to use the majority of the income that you receiving from your umbrella company to demonstrate to the lender that affordability should not be a concern.