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Contractor Mortgages: A Few Tips
What is a Contractor mortgage?
There is no such thing as a Contractor mortgage, there are some mortgage products that are specifically tailored to be specialist mortgages and attractive to contractors. Being a Contractor lets you have the flexibility you want and a lot of independence, yet when it comes to proving your income it can cause complications.
You have to be prepared to take a slightly different approach than PAYE employed borrowers. You will have to prepare a few more documents and take additional care when picking your lender. It would be worth seeking the expert advice of a mortgage broker – a general enquiry is free too.
How much can a Contractor borrow for a mortgage?
A lender will assess your income and then decide how much they are going to allow you to borrow before making you a mortgage offer. This is known as an affordability assessment; it will also look into your credit history.
You will need at least the past six months of accounts; this means your earnings, bank statements and tax documents if you can. Most lenders do prefer you to have at least two or three years of accounts ready alongside your mortgage application.
How is a Contractor’s income assessed for a mortgage?
If you have been a contractor for a good amount of time, lenders will tend to average out your income from the past few years and then estimate your income for the upcoming years. This will be used to ensure you can afford the repayments on your mortgage.
If your earnings change dramatically from year to year then it may be more difficult to find a lender willing to accept your application. If there are, it is likely that the interest rate will be slightly higher as you will be deemed as a high-risk borrower.
Getting a mortgage when you’re paid a ‘day rate’
There will be some mortgage lenders that will be willing to accept your application if you are on a day rate. It just means that they are going to have to do more calculations and they may require you to have a twelve-month contract for this to be an option.
Lenders will take your day rate and multiply it by the number of days you tend to work per week or months and multiply it out to the full year. Lenders may also want to factor in days that you take as a holiday or any gaps between contracts so many assume you only work 26 and 48 weeks per year.
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How can I strengthen my mortgage application as a Contractor?
You can offer a larger deposit to become more attractive to the lender you are applying to. The more money that you can put upfront, the less risk they take in lending to you as it will be a smaller amount than they anticipated.
If you can produce any other agreement you have had previously with other lenders or employers to prove you’re reliable then this will improve your chances of success. Long-term security is attractive and is what they want to see in a potential borrower.
Make sure that you have a good credit score to strengthen your chances you can check yours through sites such as Experian for free. You should ensure all of your details are up to date on the Electoral Roll and that you have closed any unused accounts.
It is important that you try to minimise any employment gaps as these may be questioned when you start your application process to ensure you can cover the payments. You will need to bring evidence of your incomings and outgoings as well as any accounts you have.
How mortgage affordability is assessed for a Limited Company?
Being a Limited Company is becoming more and more popular and lenders are becoming more flexible towards them. Lenders will consider your salary and the dividends as your income, it may be worth finding a specialist lender that offers specialist underwriting if you are on a lower salary.
You need to make sure you are distinguishing between money held by you and money held by the company. Funds that are set aside to pay the company tax, income VAT or income tax will not count towards personal assets. Seek the help of a qualified accountant if you are not too sure about this.
How can a Mortgage Broker help me as a Contractor?
As a Contractor or a first-time buyer Contractor, you may be worried about applying for a mortgage because of the complexity of your income. You should not let the fact you carry out contractor work to stop you from undergoing a mortgage application process. There are a number of different mortgage rates and variable rates too and brokers can help find the right mortgage deal.
It is worth seeking the help of a mortgage broker as the market is constantly changing and it is actually getting better for contractors. They can help you gather the documents you will need as well as guiding you towards the right option to fit your personal needs. They will even tailor options based on your contract and the hours you work.
We know how much you love your independence and we can offer one to one support that you will not get online. It is always worth seeking expert advice and general enquiries will not incur a fee. Get in touch with a member of the team today to secure a mortgage that little bit faster.
Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.