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Contractor Mortgages

Becoming self-employed, starting your own business and being your own boss can come with many perks–not least the freedom to make your own choices. However, there can be a few drawbacks–the ability to obtain a mortgage to meet your needs being one of them. Thankfully, many specialist lenders moved to fill the gap in the mortgages market left by the risk-averse high street banks and building societies, but in more recent times even the mainstream lenders are becoming more flexible in dealing with contractor mortgages.

Mortgages For Contractors

There are now mortgage deals on the market designed to specifically meet your needs as a contractor and take into account the structure of your business and your income. As a contractor, you probably don’t have the two or three years’ worth of accounts that lenders usually like to see when assessing your application, nor the regular annual salary of a conventional employee.

Specialist mortgages for contractors are arranged in the knowledge that you are paid a daily or weekly rate, and lenders will consider your contract rate when making an affordability assessment. If you have a clean credit history and a high credit rating, then you should expect to be able to borrow at the same rate of interest as someone in routine employment.

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Do I need 3 years of accounts to get a contractor mortgage?

This might have been the case in the past, but now you do not need to always produce three years’ worth of accounts. Many specialist lenders are willing to grant a mortgage based on your current contract or most recent year’s accounts, if it can be shown to be an accurate reflection of your ongoing income. Remember that all lenders will have their own individual criteria regarding the information they need to see from you, so it’s best to check this in advance.

Mortgages For Contractors Information

Who can get a Contractor Mortgage?

These kinds of mortgages are typically designed for two types of people:

  • People employed on a short-term or fixed-term contract basis
  • Those who are self-employed but working through one company–usually an industry specialist or tradesperson (e.g. IT engineer, or electrician).

If you have worked in the same type of role or employment for a while, it may be possible to get a mortgage at the start of a new contract, if your terms and income are consistent. The various lenders in the mortgage market often take different views and apply their own set of criteria according to the type of contract you are working under, so it is recommended that you speak to a specialist mortgage advisor to find out all your options and determine which lender will be the best one to meet your needs.

Why might a Contractor Mortgage be a better option?

A mortgage designed for contractors can come with some benefits. As the indicative figure for your annual income is calculated using multiples of your day rate, you might often find that you will be able to borrow a surprisingly larger sum than with a standard mortgage. Lenders will often restrict the level of borrowing available to small business or limited company owners due to them drawing a smaller salary plus dividends, while an IT Contractor’s mortgage will have been calculated using their current contract rate projected as an annual salary, which could be a significantly higher figure.

What type of Contractor Mortgages are available?

There are five main categories that your contract could fall under, and lenders will be looking at different key points in each:

  • Agency workers – If you are undertaking contracted work through an agency, then in addition to your payslips you will need to supply copies of your contract and any evidence you have to show your track record in your line of work. While many lenders have adopted a more flexible approach to agency contract workers, not all of them will be willing to lend on this basis. However, a quick discussion with one of our specialist mortgage advisors will be able to reveal which lenders will be most suitable in your case. The application process might take a bit more work, but with the correct advice and presentation, the end result should be a happy one.
  • Self-employed–typically, a 6-month minimum contract should be in place
  • Fixed term contracts–you’ll usually need to prove previous experience as a contractor
  • Working under an ‘umbrella company’–a 12-month track record is usually required
  • Zero-hours contracts–lenders will usually want to see a 12-month working history, but depending on an overview of the lending proposition and your individual circumstances, it might be possible for you to apply with this type of income with less than a year’s records.

One of our expert advisers can easily carry out a full assessment of your current circumstances and requirements, so we can ascertain which lenders will be willing to consider your application.

How do I get a Contractor Mortgage?

Obtaining a mortgage, whatever your employment status, is always influenced by the lender’s assessment of your income and their perceived level of risk. As a contractor, getting a mortgage can be more challenging and time-consuming than if you were a regular employee, and finding a suitable solution for you will depend on the type of contract you have, the terms remaining and your past experience.

Everyone’s situation is different, and a member of our specialist mortgage team will be able to go over your circumstances to find the best way forward.

I have just started Contracting – Can I get a Mortgage? 

This may seem like a challenging time to get a mortgage in place, but don’t worry, you should still be able to secure the right mortgage for you. It should be possible, but a lot will depend on your particular circumstances and the duration of the contract you now have in place–lenders usually expect to see a minimum 6-month term. They key is to establish sustainability of income. Your chances of being accepted are also likely to be influenced by the type of work you are doing and if you have a history of employment in the same or a similar role.

I am on a Short-term Contact – Can I get a Mortgage? 

You should not be prevented from obtaining a mortgage because you are on a short-term contract. Lenders usually make decisions based on a view of your proven income, and if you can show a steady history of earnings and employment in this way, then it will count in your favour. Just like any self-employed person applying for a mortgage, you will need to show that your ongoing income is sustainable through past contracts and projected prospects.

What if your current Contract is due to expire?

If your contract is due to come to an end soon, it is still possible to apply for a contractor mortgage. Most lenders will need to see at least eight weeks remaining before your contract runs out, but they can be flexible if you can show a high chance of renewal or extension, or an offer of work elsewhere. However, if you expect to need a mortgage in the near future and your current contract is due to expire, it might well be simplest to secure your next contract before applying.

Which Contractor Documents do you need to have?

As a contractor, what you have been paid in the past is not a sure-fire  indicator of what you will earn in the future, so a specialist mortgage lender will not be overly concerned about your contracting history. However, you will still need to provide the following documents to support your application:

  • A copy of your current contract – Lenders will need to see how much you are earning now and the length of time remaining in the current contract period. If your contract will be coming to an end in the near future, they might want to see a promise of renewal or extension from your client or agency, or evidence of new contracted work shortly coming into place.
  • Bank statements for the last three months – This is to prove you have been earning regularly, and at an affordable level for the mortgage you are applying for.
  • A copy of your CV – Your CV will prove your history of work in your role or specialisation as a contractor, lending weight to your consistency of income. If you don’t have one handy, and have a profile on LinkedIn, you can actually print out your profile in CV format, saving you time and effort.
  • Proof of I.D. – All lenders need to know exactly who they are lending to, and will also make a check on your credit score and records.

As we often remind people looking for a mortgage, all lenders have their own different criteria when assessing applicants’ income and level of mortgage affordability. Some may ask for other information in addition to the above, but most specialist lenders will find this sufficient to secure a mortgage. If you have recently started as a self-employed contractor, sole trader or freelancer, and don’t have many years’ worth of accounts, then this is great news.

What’s next?

To find out your mortgage options as a contractor, no matter what length of work history you are able to provide, feel free to arrange a no-obligation discussion with one of our advisers. They will go over all the documents you’ll need to get a competitively-priced contractor mortgage and point you towards the most suitable lenders.

How much deposit do I need for a Contractor Mortgage?

There is no set rule for the level of deposit you need to put down, either as a contractor or any other type of worker, and the typical minimum of 5% could be sufficient. However, the larger the deposit you can provide, then usually the better the terms of your mortgage, especially the interest rate. A bigger deposit will usually give you access to deals with a lower interest rate and repayment amounts, but, as ever, a lender’s decision on the deal will depend on their analysis of you being able to afford the mortgage payments on the balance.

If you talk to one of our advisors, they will be able to assess your circumstances and requirements, and recommend options that will suit you best going forward.

How much can I borrow with a Contractor Mortgage? 

Your level of borrowing will depend entirely on the figure the lender uses for your annual income, and their policies on what multiple they use to arrive at an amount they are willing to lend. For contractors on daily rates, they will typically take your day rate, multiply it by the number of days you work per week, multiply that by 48 to get an indicative figure for annual income, and then multiply this number by 3.5–5 times to get the figure you will be able to borrow.

So, if for example your daily rate is £400 and you work 5 days a week, for 48 weeks a year, then an indicative annual income would be £96,000. Depending on the multiple the lender uses to find the amount they are willing to lend (3.5x–5x), you could be looking at a mortgage of £336k–£480k. To secure this mortgage, you would need a signed copy of your contract, a record of your working history, the three most recent bank statements and proof of identity. Some may ask for a copy of your SA302 form, if you submit your year-end tax calculation via the HMRC online portal.

As we always mention, every lender will have their own criteria and methods for calculating your indicative annual income, so you would be best advised to talk to a member of our team about which lenders will work best for your mortgage. Arrange a free consultation today.

How Much Contract History Do I Need?

The commonly accepted wisdom is that, as a self-employed contractor, you will need to show at least three years’ worth of business accounts in order to get a mortgage. There is good news: this is no longer true. If you were worried about being locked out of the mortgage market due to a lack of employment history as a contractor, then you’ll be pleased to know that you can actually get a reasonably-priced mortgage with as little as a copy of your current contract.

After the financial crisis and ensuing credit crunch around 2008–9, both lenders and the authorities became a lot more risk-averse. Lenders policies towards documentation and proof became far more stringent and this, coupled with stricter lending regulations, made getting a mortgage far more difficult for contractors and the self-employed to get a competitively-priced mortgage. At that time, a contract with only one year’s accounts looking for a mortgage would face a real struggle.

With a large (and growing) section of the workforce in need of mortgage facilities, a range of new, smaller and more flexible lenders entered the market. Fortunately, needing to supply three years’ worth of accounts is no longer always necessary.

What Is The Situation Now?

Even though a small number of high street lenders are starting to consider mortgages for contractors with one year’s accounts, you’ll find that most mainstream lenders are still adhering to the three-year rule–their assessment processes are simply not geared up for people outside of a tight set of parameters. The place to find a more flexible approach is with the growing number of specialist lenders who have entered the market in recent years, some of whom might not need to see any history of contracting at all.

A specialist contractor mortgage broker will not demand to see the same level of documentation as the mainstream lenders, and will be happy with different methods of showing a sustainable income. They will understand that the way your income is reported on paper may not be a true reflection of the mortgage level you will be able to afford, and will package your application in such a way as to show your actual earnings and ability to pay.

Best Mortgage Lenders For Contractors

Some mortgage lenders can be seen as being more ‘contractor-friendly’ than others, but there are a range of lenders who are now happy to consider applications from self-employed contractors.

As ever, your access to a mortgage will depend on the stability of your income and the lender’s methods to gauge your creditworthiness. Lenders, just like contractors, all have their own nuances–your contract type and overall financial circumstances will determine who might lend to you and how much. A free discussion with one of our advisors will quickly point you in the right direction.

Best Mortgage Rates for Contractors

All circumstances being equal, the rate of mortgage interest you pay as a contractor should be no different to that paid by someone in conventional employment. The amount you can borrow, and the rate of interest you pay, is largely down to your verified income and the size of the deposit you provide. And in many cases, the healthy daily rates paid to contractors in certain sectors means they are able to save larger deposits than their PAYE cousins, which will mean a lower rate of interest on the mortgage and a reduced cost of the overall loan.

Contractors are able to access all kinds of mortgages, and we will be able to align you with lenders offering fixed rate, variable and tracker rate mortgages.

Mortgage advice for Contractors

Going through all your options online and trying to identify the best mortgage lender to suit your needs and circumstances can seem like a maze of information with no clear signpost for the best route forward–and this is just the providers and deals you can find online!

A specialist contractor mortgage broker can advise and assist all self-employed people and expert contractors to find the correct mortgage to suit their circumstances and goals.

Remortgaging as a Contractor

In a nutshell, remortgaging is transferring the lending on your property from one provider to another who can give you a better deal. At the same time, you might be able to take the opportunity to increase your borrowing (especially if your house has gained in value, or you can show an increased income) in order to fund home improvements or major purchases. Remortgaging your property is usually more straightforward than applying for a new mortgage from scratch, but contractors will find that some of the same challenges they faced initially will still apply.

Much might depend on which lender you would like to move your mortgage to for a better deal. Mainstream lenders will often have more stringent criteria for assessing income and affordability–requesting three years’ worth of business accounts for example–than the specialist lenders who are accustomed to lending to contractors and other self-employed workers. They are more accommodating when it comes to considering your earnings, and may well be comfortable with using your current contract and three months of bank statements to assess your present and future income.

You might be in a position to make significant savings each month if you find your existing mortgage deal falls short of the current levels of competitiveness in the market. You can use these savings as extra disposable income, or perhaps take the opportunity to pay off your borrowing more quickly. With the market now being very competitive, and lenders fighting for custom, you might find that some remortgage deals offer very attractive benefits such as free valuations, free legal costs or even cash back. Take your time to shop around!

Contractor Remortgage

For contractors with a mortgage, as with any other homeowner, it’s a good idea to regularly check that you have the best deal available, or you could be wasting money. Homeowners regularly fall into the ‘inertia’ trap that mortgage companies love, where they are happy to take the easiest option of staying in a deal that might not provide the best value, or they allow themselves to simply slip into the lender’s standard variable rate at the end of a favourable introductory period.

In either case, the end result is the same–you will be paying more for your mortgage each month than you need to. This might be fine if the money was paying your debt off sooner, but in fact these excess funds are simply more extra profits for the lender. Let’s see what we can do about it.

There are two sides to checking whether you are paying too much for your mortgage. The first is to make sure you are on the best possible deal. This is much easier to say than to find out in practice, as there are now a huge range of mortgage products and deals on the market, and it would be a considerable effort to research them all, let alone calculate what each will mean to you over an extended period of time.

The simplest thing to do is to check your annual mortgage statement, where you should find the interest rate you are being charged, the type of mortgage (e.g. tracker, fixed rate, etc) and–most importantly–when your current deal will expire. Take note, as this is when your mortgage will revert to your lender’s standard variable rate of interest. Your mortgage documents should also detail whether you would need to pay a hefty fee for early repayment, and if you are in fact free to remortgage.

Secondly, you should keep yourself up to date with the headline rates and customary terms available in the overall mortgage market. This will give you a context for considering your own current mortgage deal. You don’t need to inspect the listings every week, but perhaps every year when you get your mortgage statement, take a bit of time to browse through the mortgage lender’s websites, some best-buy tables and of course the comparison sites, to get an idea of whether your mortgage is still providing the best value. If it has been overtaken by new offers, then you should perhaps consider remortgaging.

FAQs

  • Can I get a Right to Buy Mortgage if I am a Contractor?
  • Contractor Buy-to-Let Mortgages
  • Contractor Help to Buy Mortgages
  • Can I get a Shared Ownership Contractor Mortgage?
  • Can I get a Contractor Mortgage if I Have Bad Credit?
  • Do Contractors have to pay a higher deposit?
  • Should I be aiming for a 10% deposit?
  • Can I get a Contractor Mortgage on a high LTV?

A Right to Buy application is not impacted by your status as a self-employed contractor, so yes, the same terms should be available to you. You should be aware, though, that not all lenders will consider this kind of application, and that you will still need to supply a personal deposit on top of the council deposit, usually the minimum 5%. However, generally all decisions on mortgage lending are based on an assessment of your income, and if you meet the lender’s criteria in this respect, then your application should go forward.

These types of mortgage can be seen as a kind of business in themselves, and the amount you are able to borrow usually relates to the rentable value of the property in question rather than your own income as a contractor. While this might make your income a non-issue, many lenders might require you to be in a contract with a minimum term still remaining.

Our advisors are available for free, no-obligation consultations where we can review your circumstances and let you know what the best options available to you are.

Your status as a self-employed contractor does not affect you getting help with your mortgage under the government’s Right to Buy scheme, so the same mortgage deals should be available to you. Help to Buy was set up to help people into home ownership by extending a loan to cover part of the mortgage on a new-build home interest-free for the first 5 years–this also means a lower Loan-To-Value ratio, resulting in a more favourable interest rate.

Generally, all decisions on mortgage lending are based on an assessment of your income, and lenders will still want to make sure you can afford repayments on any mortgage. If you meet the lender’s criteria in this respect, then your application should succeed, but it’s best to talk to a specialist advisor to make sure you’re being given the right options.

Obtaining a mortgage on a shared ownership basis, coupled with being a contractor, might present more challenges, but it is definitely possible. Finding a shared ownership mortgage, especially one that will work best for you, takes some research as these products are not widely available, but with our knowledge of the market and intimate understanding of the deals offered by specialist lenders, we should be able to source a mortgage to meet your needs.

Our specialist brokers will be able to give a thorough appraisal of your circumstances and let you know your options for obtaining a mortgage.

If you have a less-than-perfect credit history, then there is still good news. It is possible for you to get a mortgage as a contractor, even if you have bad credit marks showing on your records. A lot will depend on the nature and severity of the adverse credit event, and indeed how much time has passed since it happened. A few missed payments on a store card three years ago will have a lot less impact than a county court judgement made against you last year–and remember that all black marks fall off your credit record after six years. A specialist mortgage advisor will be able to go over your personal circumstances and let you know what your best options are going forward.

The level of deposit you need to provide will vary according to your circumstances, but it’s generally acknowledged across all types of mortgages (and for applicants in any kind of employment) that the higher your deposit amount, the better deals you will be able to access. The usual minimum deposit needed on a property is 5%, which is typically available on all standard mortgages and on mortgages obtained through the government’s Help to Buy scheme (created to help first-time buyers purchase a new-build property).

While 5% is generally the minimum, there is no set maximum figure for a deposit, although most lenders have a cut-off point around 40%. As with most lending criteria, this can vary greatly from one lender to the next, and the amount of deposit that is either expected or is best for your long-term aims will depend on your individual circumstances–but, either way, the type of products available, the interest rate and level of monthly repayments will be closely linked to the deposit amount you are able to put down. A specialist broker will be able to show you your best options according to your situation.

It’s difficult to know exactly what the most competitive rates will be and who will offer them, but it’s generally known that most mortgage deals will become most favourable when you are able to provide a 10–25% deposit.

When looking at what properties you can afford to buy, you will be able to get a good idea of where you stand by identifying how much you will be comfortable paying on a monthly basis and how much you can put down as a deposit in order to see how much you will be able to borrow for a mortgage. A specialist mortgage provider will go through an affordability assessment with you, so you’ll be able to see exactly what level of property purchase price you will be able to consider.

Taking into account your income (or the indicative figure arrived at by the lender based on your contract) and monthly ongoing commitments, the lender’s assessment will give a guide on how much they will be willing to lend. When this is taken with the amount of deposit you are able to put down, you will be able to see the maximum property purchase price you will be able to consider.

Currently, thanks to the growing number of specialist lenders competing in the market, and their methods for assessing contractor income, contractors are now able to access better mortgage deals that ever before, and can even find more favourable terms than those commonly available on the high street to employees.

Contractors are generally able to apply for a mortgage–including one with a high LTV–by supplying a signed, up-to-date copy of their current contract and perhaps some other supporting documents like 3 months of bank statements, their CV to show their work history and a proof of identification. The length of time you have been contracting is not always important, and neither are previous rates of pay. You might not even need to produce accounts, and if it is your first contract you could still be able to apply.

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