With recent mini-budgets and continual alterations causing instability surrounding what will happen with IR35, it’s more challenging than ever for the average individual to figure out whether they’re eligible for a mortgage. Not to mention what they need to do to get in front of the most suitable lenders. If you’re considering getting a mortgage as an IR35 contractor, seeking advice and understanding your current circumstances is critical for preparing to purchase a home.
We cover everything you need to know about mortgages as an IR35 contractor below, from what you’ll need to do to how being a contractor can affect your options. Read on now to learn more about how an IR35 mortgage works:
If you're an IR35 contractor, you're in the middle ground between employment and self-employment. Under current regulations, the umbrella company or client you work for most likely handles your tax and national insurance contributions alongside their internal payroll. As such, while you're technically working for a company, you aren't employed by them – placing you in a limbo between the two.
If you’re a contractor, the first thing to remember is that mortgage lenders may see you as self-employed. Unless you go to a dedicated lender with specific IR35 mortgage options, framing your mortgage as a self-employed mortgage is helpful for finding a solution that fits your budget, works for affordability testing and lines up on mortgage calculators. find me a mortgageBeing an IR35 contractor can affect your mortgage options because most lenders have an extra layer of scrutiny and security over workers within this particular field. This process helps them decide whether an individual can be considered an employee or self-employed to calculate their affordability as accurately as possible. Recently, some lenders have chosen to apply criteria based on whether tax is paid by the company the individual works for or whether they are employed as contractors within an umbrella company.
How do mortgage lenders decide if you’re a suitable candidate for a mortgage? Much like any other mortgage option, several factors are utilised to determine whether you're eligible for a particular mortgage option. These include:
Contractors working through umbrella companies or specific businesses currently have their income paid on a net basis. This practice means that taxes and national insurance contributions are removed before you receive your pay. However, your income is still calculated at the gross amount when applying for a mortgage, considering all the money you earn before taxes and other payments to establish your base salary.
The type of contracting you do can directly influence how an IR35 mortgage works for you. For example, if you are a contractor with more than one company, you'll likely be considered self-employed for your mortgage application. Some lenders also consider the standardisation of contracting in certain sectors. For example, different options may be available in the IT field, where contractors will often work with a single company for years.
The number of hours or days you work per week can be a deciding factor for mortgage lenders. This number is used to calculate your income and affordability and provides insight into the stability and regularity of your work.
How you're paid may differ depending on your particular sector or industry. Lenders may ask you for your hourly rate, day rate or yearly income to get an idea of what you're bringing in. Having a firm idea and documentation of what you earn daily, weekly, monthly and yearly on average is essential.
Depending on your field and if you’re on the payroll of the company you work for, getting an IR35 mortgage may be an easier option depending on your choice of lender. As some mortgage lenders view IR35 contractors as employed in some capacity while umbrella companies or PAYE companies are paying tax and other contributions, you may have more options.
If you plan to apply for a mortgage as an IR35 contractor, you'll want to prepare yourself to be ready for affordability testing. Whether it's a first-time mortgage or your first mortgage since moving into a contractor role, it's important to think about the scrutiny that lenders may have. Here are some things you can do to improve your options:
As with any mortgage, a strong credit score is ideal for gaining access to mortgage deals that work for your level of income while giving suitable rates. Building your credit score is valuable as an IR35 contractor to show lenders you have good financial responsibility.
Depending on the lender, self-employed rules may apply when looking for a mortgage. Ensuring you have at least two to three years of documentation as a contractor is valuable for backing up your mortgage application. Even if this information isn't needed, it's helpful to prepare ahead of time, just in case.
Working with a specialised mortgage broker is the ideal way to seek a suitable IR35 mortgage for your finances and goals. A broker can connect you with lenders, support you in your application and ensure you're on the right track to apply for a mortgage with everything prepared ahead of time.
Are you planning to apply for a mortgage as an IR35 contractor? Get in touch with our team at WIS Mortgages today to discuss your requirements with a qualified mortgage broker in London. Our experts are here to offer free advice with zero fees and support you in finding the most suitable mortgage for your circumstances.
As a mortgage is secured against your home/property it may be repossessed if you do not keep up with the mortgage repayments.
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