For the last few years all we have been hearing is just how difficult it is to get a mortgage in the current financial climate. The banks that had caused all trouble were tightening their belts and not listening to the government request to loan more and mortgages were something that required high salaries, perfect credit files and hefty deposits. Anyone looking for anything specialist, be that buy-to-let, self-employed or contractor mortgages had no chance. Over the last year things have begun to change however and along with the optimism returning to the housing market there is once again an increase in the types (and availability) of specialist mortgages – and specifically contractor oriented mortgages – on the market.
How do you define a specialist mortgage? Roughly speaking that would be any kind of mortgage that is willing to look at mortgagees who don’t fit into the standard monthly salary / high deposit pattern and that are willing to base a decision on your credit-worthiness on a much wider template. Consequently they are willing to provide mortgages to people such as buy-to-let freelancers and the self-employed. And when it comes to contractors, there are specific ‘contractor mortgages’ out there that do exactly this. This article will examine contractor mortgages.
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Why Are Contractor Mortgages Necessary?
Contractor mortgages are necessary because more and more people are changing how they work and going into business for themselves, either as small business owners or as freelancers or contractors. When these people need a mortgage the standard financial requirements for mortgage approval no longer fit – despite the fact that many (if not most) contractors earn higher wages than the average salaried worker. Consequently mortgages were needed for this type of applicant.
What Exactly Is Meant By the Term ‘Contractor Mortgage?
A contractor mortgage is obviously a mortgage geared towards contractors. It is also a standard, normal (or ‘prime’) rate mortgage despite the specialist underwriting that goes on. In order to assess an applicant for a contractor mortgage the mortgage company will look at the number of years that the contractor has been working contracts, the retained profits of the applicant, the rate they charge for a contract and the duration of the contract they are currently working on as well as any contracts they may have lined up in the months ahead.
Are They That Different from Normal Mortgages?
Not anymore. It used to be that contractor mortgages fell into the self-certification category and contractors were only able to apply for self-cert products. As these were always built around much higher interest rates and a style of underwriting that could best be described as monolithic, they were seen as unfair and punitive. Thankfully, as part of the tightening of the rules around mortgage lending requirements self-certification mortgages have now been effectively been banned. Now contractors are able to access mortgages that are all but identical to the high street mortgages except they have a wider set of eligibility requirements.
Can Anyone Apply for a Contractor Mortgage?
In a word: yes. There are no specific rules and regulations that limit contractor mortgages to a specific class of people, simply a number of products available that might suit different kinds of employment style. Indeed there are a surprising number of different mortgages now available for contractors in comparison to a few years ago and there are mortgages to suit all kinds of levels of contracting. There are those that are geared towards contractors who might not have great credit and there are those available to contractors who are buying their first home. Additionally, there are mortgages for contractors who don’t have a long history of contracting and don’t have more than a couple of years of accounts.
Do Contractor Mortgages Cost More?
There is no good reason why they should; in other words, they should cost roughly the same as a standard high street mortgage and the only difference is the cost of the broker who sets it up to you. That’s why it is important to shop around when it comes to choosing an Independent Financial Adviser (IFA) and to make sure they are FSA (Financial Services Authority) registered. Find out the cost of their fees and any built in percentages up front and get a price for the total cost of securing the mortgage. Additionally, check the rate of interest and the cost of charges against mortgages on the high street.