Do I need three year’s accounts?
This is a very common question since many contractors have been considered as self-employed when applying for mortgage funds in the past. Nowadays, banks have become more comfortable lending to contractors and will apply specialist underwriting tools when assessing a proposal. Income can normally be proven by assessing accounts, self-assessment returns, SA302 tax calculations and even the contracts themselves.
Who is eligible for a contractor mortgage?
Generally, lenders will be looking for borrowers to have a track record in their chosen business and be able to show evidence of being paid by contract on an hourly, daily, weekly or monthly basis.
What types of contractor mortgages are available?
Contractors are able to apply for the full range of mortgage products on the market so, Fixed Rate Loans, where the interest rate is set for a limited period of time, Tracker Mortgages where the interest rate follows the Bank of England base rate, and Discounted Mortgages where the interest rate is connected to the lender’s own variable rate are all commonplace.
Offset Mortgages are very popular with contractors, as these allow you to offset your savings against the outstanding balance, so if you had a loan of say, £200,000 and had savings of £50,000, you would only pay interest on the £150,000 difference between the two.
How can I apply for a contractor mortgage?
Contractors are able to access mortgage loans by applying directly to the lender or by using a broker such as WIS Mortgages. By applying directly to a lender you would normally be restricting the choices available to you, given that they would obviously only have access to their own product range. By using a broker you would be expertly guided to the most suitable product for you in the whole market with some products, designated as “broker only” being exclusively available to the intermediary market.
Is now a good time to apply for a contractor mortgage?
With all the uncertainty around at the moment you might be forgiven for thinking that applying for a mortgage at this time might not be the best idea, however, with Government initiatives in place designed to stimulate the economy, such as the reduction in Stamp Duty, and with changes to the Help to Buy scheme due in April 2021 alongside the new IR35 tax legislation, which might restrict the options available to contractors, now might be considered a very good time to consider applying for a contractor mortgage.
What if I work for an umbrella company?
Since many lenders offer bespoke underwriting facilities for contractors and have many years’ experience in the field, those working for umbrella companies can often access mortgage loans without difficulty, however, this situation might change when the IR35 legislation comes into force in 2021 when proof of income, in the form of 12 month’s pay-slips for example, could become a requirement.
The very idea of bespoke underwriting means that each application will always be considered on its merits and, as long as a contractor has a track record in his chosen field, obtaining a loan should be relatively straightforward.
I’m new to contracting and on a short-term contract, can I get a mortgage?
Not all banks will accommodate “Day One” contractors but some will, as long as you have a proven track record in your particular line of work. WIS can advise you about the best lenders to approach.
What deposit will I need?
The level of deposit required is no different for a contractor mortgage than for any other type, however, since the onset of the Coronavirus pandemic, banks have generally increased the level of deposit required to between 10-15%. This is generally thought to be a temporary measure and it is likely that the level of deposit required will return to the levels seen prior to lockdown once matters improve.
How much will I be able to borrow?
For contractors the level of borrowing will normally be calculated based on a multiplier of your stated daily rate. For example, if your rate is £100 per day it would be assumed that you work 5 days per week and for between 41 and 48 weeks per year, depending on the lender. Once that figure is calculated the lender will apply their normal multiplier to ascertain the maximum you can borrow.
What interest rate applies to contractor mortgages?
The interest rate applicable to your mortgage would be the same as for a regular applicant, with the provision that not all mortgage products offered by a lender might be available to you since their eligibility criteria may not apply. WIS can help point you in the direction of the most suitable lender for you.
Can I get a Right to Buy, Shared Ownership or Buy to Let Mortgage as a contractor?
Yes, in general, all types of mortgage are available to contractors with a track record.
I have a less than perfect credit record, can I still get a mortgage?
A bad credit history will obviously have an impact on the number of lenders willing to offer you a mortgage but here at WIS we would approach only those who we feel would be willing to help. A missed payment in your deep and distant past will be less problematic than something more recent of course, but our own experience will guide us to the most sympathetic lender for you. It’s best to avoid any situation where further credit checks are needed before a mortgage is approved as these can further impact your record, so our method would be to discuss your application in general with a lender before the final checks are made.
What is the best way forward for me?
Our business at WIS provides accountancy services alongside our mortgage broking facilities and we even have an umbrella structure ourselves, so we have a unique insight into the problems faced by contractors generally and those working for umbrella companies in particular. As you can imagine the language used by accountants, providers of umbrella companies and mortgage lenders is full of jargon but it is one that everyone at WIS speaks fluently, so get in touch if you need advice about your mortgage lending.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the mortgage repayments.