First Time Buyer Contractor

First Time Buyer Contractor

Carly is here to explain how the mortgage process works if you are a First Time Buyer and a contractor.

Is it harder to get a mortgage as a contractor and a First Time Buyer? How does it work?

Yes, it’s definitely possible to get a mortgage as a contractor and a First Time Buyer, but sometimes it can be a little more tricky compared to someone in straightforward employment.

Lenders will ask the following questions:

• What type of contractor are you?
• Are you PAYE or self-employed?
• How long have you been contracting for?
• Have you had previous contracts renewed?
• How much experience do you have?
• How much time have you served within your field?
• How long do you have on your current contract?

How long do you have to be a contractor to get a mortgage?

Typically, lenders will want to see two years’ employment history. It is possible to get a mortgage with less than that, but you will have a smaller pool of lenders from which to borrow.

The minimum acceptable contract length could be anywhere between three and 24 months. Many lenders will want to see evidence of renewal for contracts with less than six months left to run.

How much can I borrow for a mortgage if I’m a contractor and a First Time Buyer?

We could secure you a mortgage based on your gross contractor earnings. Typically, lenders will multiply your annualised earnings by four and a half or five times.

If you’ve got existing credit commitments or fixed outgoings, they will need to take these into consideration. It’s helpful to pay off any loans or credit cards prior to applying for a mortgage to maximise the loan available to you.

How is a mortgage calculated for a contractor that is a First Time Buyer in the UK?

Day rate contract lenders will use your day rate and calculate the number of days worked per week. To get your annual earnings they multiply that by 46 weeks or 52, depending on the lender. Otherwise lenders will assess your pay over the last three months and use your P60 to verify this.

What documents do I need to apply for a mortgage as a contractor and a First Time Buyer? How do I prove my income?

It’s very important to have a signed copy of your contract confirming your current contract rate, and three months’ bank statements confirming your contract earnings and outgoings.

You’ll also need a copy of your updated CV confirming your employment history, plus proof of ID.

What if I have bad credit as someone who is a contractor and looking at my first mortgage?

You could still get a mortgage as a contractor, even if you have bad credit. But the combination of poor credit and less predictable income could limit the number of lenders products available to you, making it a bit harder to find a competitive deal.

Can I get a Buy to Let mortgage as a First Time Buyer contractor?

It may be a bit more challenging than for someone who’s owned a residential property before, because fewer Buy to Let mortgages are available to First Time Buyers.

A bigger deposit of around 25% is also required for a Buy to Let mortgage. Lenders will need to ensure that the profit from the rental property will cover 125% or even 145% of the mortgage payment before they will consider the loan.

How can I improve my chances of getting a mortgage as a contractor and a First Time Buyer?

A higher deposit helps, as this will reduce your risk to the lender. Take a look at your credit score to decide whether you need to improve it first before submitting an application.

You could also gather as much evidence as possible to show your earnings over the last few years. This should include your invoices, bank statements and any other accounts. Provide evidence of your current and previous contracts, as well as previous experience.

Try to minimise your time off in the lead-up to buying a home. Lenders may see it as a red flag if you’ve been out of work for more than six weeks in a 12 month period.

How do I apply for a mortgage as someone who is a contractor and a First Time Buyer?

I would recommend you use a mortgage broker. It could be quite tricky to obtain a mortgage as a First Time Buyer and a contractor. Finding a suitable mortgage yourself would be time-consuming and involve repeating your details to many lenders.

Brokers will instantly know which lenders will be able to offer the right mortgage for your circumstances and streamline the process for you.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.