Mortgages for Contractors
The one downside of contracting has always been that banks and mortgage companies are not very keen (and that’s putting it mildly) to lend to contractors. A contractor can turn up at a bank with a long and reliable work history, a contract in hand, a high salary and a large deposit and still leave empty handed thanks to the bank’s inflexible and outdated mortgage criteria. For years now contractors have been going through the motions, sitting down with their bank manager and trying to convince them that they are a good investment and asking for the same type of mortgages (if they can even get a mortgage) as their employed counterparts. And for years the bank manager has been shaking his head and claiming they don’t fit the criteria in front of him. Those criteria will inevitably split potential borrowers into ‘self-employed’ or ‘employed’, which is far too simple a divide for many contractors who use complex tax-efficient payment vehicles to maximize their earnings.
As a result, contractors would usually be declared ‘employed’ and a large percentage of their income would be ignored when their eligibility was being assessed. This in turn led to contractors either being turned down completely or being offered mortgages that were greatly reduced when it came to affordability, despite the fact that they earned a great deal more than fully employed people. Thankfully however things are starting to change and banks are slowly realizing that contractors are actually high earning, reliable borrowers and that the contracting sector is growing every year as different working styles become more prevalent. Consequently a number of specialist contractor mortgages that offer rates every bit as good as the high street have started to appear. Here at Contractor Guides we keep a close eye on the latest contractor mortgages and have numerous guides on how to find and apply for them.
HAVE YOU HAD TROUBLE GETTING A MORTGAGE?
MORTGAGES FOR CONTRACTORS HAVE ALWAYS BEEN DIFFICULT TO GET APPROVED.
THIS GUIDE WILL GIVE YOU THE BEST CHANCE OF GETTING YOUR APPLICATION APPROVED
Simply put, because their finances are invariably organised in a different way to those in regular paid employment. Whereas previously this may have been a reason for contractors to be unfairly refused access to mortgage products, now the market has adapted to reflect the significant numbers of people now moving into contracting and the fact that they earn (on the whole) significantly more than those in salaried jobs.
Contractor Mortgages Explained
As every contractor knows, getting a mortgage whilst working contracts is almost impossible. At least that’s what we all hear when we first think about buying a house, particularly when coupled with the financial implosion of the last few years. The banks have stopped lending to anyone but gold-plated borrowers with rock solid credit files, large deposits and a large, regular and reliable income, right? Actually, no. That may have been the case at the height of the credit crisis but things have eased up over the last year or two and there are now more options than ever for contractors seeking finance. Additionally the banks are once again starting to lend and mortgages are becoming easier to find, thanks to renewed optimism in the housing market. That applies not only to regular high street mortgages, of which there have been an increase lately, but also to so called ‘specialist mortgages’ such as buy-to-let and contractor mortgages.
These specialist mortgages are mortgages in which the lender is prepared to consider a mortgagee who would not normally be approved by mainstream financial institutions and high street mortgage products. Normally they would not be approved because they do not appear to satisfy the monolithic monthly salary model of income whereas a specialist mortgage broker would taker a number of other factors into account such as whether they were buying the property to let out and make money on (which would cover any mortgage) or whether their income over a year was enough, even if some months they might not work contracts. For contractors then it is possible to find very specific contractor-oriented mortgages that suit their income and lifestyle much better than traditional lending models.
So What Is a Contractor Mortgage Then?
A contractor mortgage does what it says on the tin. It is a mortgage that has been designed specifically for people who earn their living (and their money) through contracting. The company providing the mortgage will usually be more receptive to the (sometimes) irregular patterns of payment and different working styles that can accompany a move into the contracting sector. They will therefore weigh up different factors when considering an application, such as how many years someone has already been contracting for, the level of retained profits they have achieved, the rates they charge per contract and the expected duration of the contract that they are presently working (in addition to the number of contracts they are expecting in the upcoming months). They will also be experienced in dealing with contractors who manage their finances through a limited company or umbrella company and who might therefore only draw a minimum wage from their company whilst actually earning more and theoretically being eligible for a much larger mortgage.
Are Contractor Mortgages Really That Different from Standard Mortgages?
No. They used to be very different, at great cost to contractors who would find they were only able to access self-certification mortgages when they needed a mortgage. These ‘self-cert’ products invariably came with much higher rates of interest that were discriminatory to contractors and they also lacked the finesse to deal with all kinds of different ways of earning money. Over the last year however the rules have been changed to make such mortgages all but extinct and have opened up the mortgage market to products much more suited to contractors – and at much better rates. Contractors now have the option of mortgages that are very similar to those on the high street and are seen as normal ‘prime’ rated mortgages in every way except that they have broader categories of eligibility.
Are All Contractors Eligible?
Absolutely. Contractor mortgages are not limited to a specific class of contractor, nor indeed even to contractors. Anyone can apply for one of a number of mortgage products that best suit their style of employment, meaning anyone who considers themselves to be a freelancer will probably be interested. The range of mortgages on offer include mortgages for contractors who are buying a home for the first time, mortgages for contractors with bad credit and even mortgages for people just starting out in the contracting sector and who don’t have a number of years worth of accounts.
Will Contractor Mortgages Cost Extra?
No. Now that there are a number of different options on the market other than the self-certification mortgages of old, the prices for contractor mortgages should be roughly the same as those on the high street. The only costs that might be different to the high street are those of the broker who arranges the mortgage and it is therefore crucial that you shop around. There are hundreds of Independent Financial Advisors in your area and online and it is crucial that you research them fully before choosing one. Make sure their rates are competitive and that they are registered with the Financial Services Authority (FSA). Check how much they charge in fees, whether there are built-in percentages to pay and how much the whole mortgage will cost in total. Make sure you also compare the interest rates you are being offered with those available on the high street.
Is a Mortgage Broker Absolutely Necessary?
No, but they are worth it. A specialist mortgage broker will be able to outline a contractor’s total earnings potential when presenting their application to mortgage underwriters and will be able to get that contractor a mortgage based on four or five times their annualized earnings, irrespective of the regularity of the contracts or how they are paid. They will also be able to do this without requiring the years and years of accounts that most high street lenders would demand. Specialist brokers will know the contractor mortgage market inside out and will be able to tell the contractor up front if the application is likely to succeed, unlike high street lenders who will have less experience of this kind of application. This is crucial because a failed application will go on the contractor’s credit file which in turn makes applying more difficult next time around.
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What’s Covered on this Page
- HAVE YOU HAD TROUBLE GETTING A MORTGAGE?
- MORTGAGES FOR CONTRACTORS HAVE ALWAYS BEEN DIFFICULT TO GET APPROVED.
- THIS GUIDE WILL GIVE YOU THE BEST CHANCE OF GETTING YOUR APPLICATION APPROVED
- Contractor Mortgages Explained
- So What Is a Contractor Mortgage Then?
- Are Contractor Mortgages Really That Different from Standard Mortgages?
- Are All Contractors Eligible?
- Will Contractor Mortgages Cost Extra?
- Is a Mortgage Broker Absolutely Necessary?