Contractor Mortgages with a Gap in Employment

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Will An Employment Gap Affect A Contractor Mortgage application?  

Lenders will look into your employed history when you apply for a mortgage and if there are gaps then it can cause issues when approaching mortgage lenders. There are still options out there for you even with a bad credit score, you just need to find a lender whose lending criteria you do fit.

What is an acceptable gap between contracts from a mortgage point of view? 

Some lenders will consider 12-week gaps between contracts whereas other lenders might consider the maximum to be six weeks. If you have some gaps between contracts then do not panic, there are still mortgage options out there for you. The way in which contractors are assessed varies from lender to lender, but usually, you will need at least 12 months’ worth of contracts with some work remaining or evidence of continuous service within the same type of jobs.

Contract rate is a popular way to apply for a mortgage as it looks at the yearly contract value as a whole rather than the contracts individually. Lenders obviously prefer contractors to have an excellent history of contracts with a clean and good credit rating.

If you opt to use a day rate method, then you will need to try and provide at least 12 months’ worth of accounts so lenders can see how often you work and how much you bring home in a year.

It would be a good idea to seek advice from a Mortgage Broker if you are too unsure on any part of the mortgage application, they will be able to find specialist lenders for you as well as guide you through the mortgage application process.

Are there other routes for Contactors with gaps between contracts?

As a Contractor, you could decide to approach a lender as self-employed or as a Director of your own Limited Company. You will need to ensure you have more than 25% worth of shares in your company to be considered Self-Employed.

You can use your income that is shown in your tax documentation or the salary and dividends as long as the lender accepts it as a form of income. It is important to try and have at least two years’ worth of accounts ready to show a lender as if you have less than this prepared your options will be limited.

What documentation is needed by a Contractor to prove Self-Employed income?

You will need to have your tax forms so your SA302 forms ready alongside your tax return SA100 forms as well as the HMRC tax overview. The tax calculation will be able to provide evidence of income earned and tax paid on that income too.

Obviously, you will need a form of identification as well as proof of address and council tax bills. Any contracts that you have to prove your income may be needed too, whether this be temporary or fixed-term contracts. 

Mortgage providers sometimes require you to have filed your taxes under a chartered accountant, so it is important to check the criteria of your lender. High street lenders are likely to ask for bank statements to show that your business is sustainable too.

Can Contractors show annual accounts instead? 

You can use annual accounts to prove your income especially if you have contracts with gaps in between. Lenders who are willing to accept this route are limited and you may need to seek help from a mortgage expert to find the right one for you.

Specialist lenders may accept less than two years’ worth of accounts, but it is advisable to try and gather two years’ worth before approaching a lender. Some lenders even have their own accountant that they will require you to use so always check the criteria.

Can a lender consider gaps between Contracts in exceptional circumstances?

If gaps have been caused due to reasons such as medical problems or family issues then lenders will understand. It is important to communicate to them and if your reasoning is acceptable then they will ignore the gaps.

Mortgage brokers will know which lenders are the most likely to accept you given your circumstances so it would be worth contacting one.

How does a gap in employment affect your Contactor Buy to Let Mortgage? 

You, as a Contractor, will be treated as though you are Self-Employed by lenders if you are applying for a Buy to Let mortgage. Lenders will look into your earnings and taxes as well as the company accounts. It is important if you have many gaps in your accounts to seek help from a specialist underwriter. 

How can an expert at First Thought Financial Services help Contractors with gaps in employment? 

Our team of brokers have access to the whole of the market meaning we can give you the option of mortgage products that are not available on the high street. We have built a bond with lenders and know which lenders will be right for your situation.

We are an appointed representative of Quilter Mortgage Planning Limited which is authorised and regulated by the Financial Conduct Authority.

As long as you can prove that you can make repayments on your mortgage and are a reliable borrower then there will be some options when it comes to the time you want to buy a home.

Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

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