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What is a Contractor Mortgage?
There is no such thing as a Contractor mortgage but there are specialist lenders who tailor their mortgage products towards contractors. It can be worth seeking these lenders out as they understand more about the nature of your employment.
Working as a Contractor can bring freedom and flexibility to a lifestyle, giving you the power to be your own boss, yet when it comes to affordability checks and mortgage applications it can cause some stress. You will need to take a different approach to those who are paid under the PAYE payroll.
There are plenty of lenders out there for you to choose from all with different needs and wants, so rest assured you can find a lender to suit your current situation.
You need to ensure that you have all of the documents needed alongside a mortgage application and when you are Self-Employed or a Contractor sometimes you need additional documentation. It would be worth seeking advice from a mortgage adviser to find the right mortgage rates and repayments for your situation.
Make sure that you are applying for a mortgage that you can afford; you will need to provide things such as bank statements to secure a mortgage and if you cannot afford the mortgage you will not receive a mortgage offer. If you over declare your earnings to get a bigger mortgage and then miss any repayments your home may be repossessed too.
How much can a Contractor borrow for a mortgage?
Typically you can access up to five times your annual salary, however, this will depend on your situation. If you have a good credit rating and a good record of contracts to provide to the lender then you have more chance of being able to borrow the amount you desire.
You will need at least six months’ worth of accounts and all contracts you have undertaken whilst being a contractor. Mortgage lenders tend to favor those who have at least two years’ worth of trading accounts to provide.
Getting a mortgage when you are on a day rate
There are mortgage lenders out there who will accept you if you are on a day rate income. It just means that there are going to be more calculations involved in assessing your income and if you can afford the repayments on your mortgage. You may also be required to have a twelve-month contract for this to be an option.
Lenders will take your day rate and multiply it by the number of times that you tend to work per week or per month and then multiply it out to get a projection for the whole year. Lenders will want to also factor in days that you do not work too, many will assume if you cannot provide these details that you work 26 to 48 weeks per year.
How can I strengthen my application as a Contractor?
You can offer a larger deposit to look more attractive to the lender to prove how serious you are about investing in property. The more that you can provide the better as lenders will see you as less of a risk when it comes to borrowing.
You need to make sure that you have a steady income and that you have not taken too much time off, if you have for a good reason then lenders will tend to understand so long as you can explain.
You need to ensure you have a good credit rating to back up the fact you are a reliable borrower. You should register on the Electoral Register and ensure you keep all your accounts up to date. Avoid payday loans and dipping into your overdraft as this will reflect that you cannot handle your finances.
Any gaps between contracts should be kept to a minimum if you can. You can also opt to get an income projection provided by an accountant who will be able to tell the lender how much you are estimated to receive within the year.
How is mortgage affordability assessed for a Limited Company?
You shouldn’t let the complexity of your income stop you from applying for a mortgage. More and more lenders are becoming flexible towards Limited Companies and the things that they consider in your affordability check will vary from lender to lender.
You need to ensure that you clearly distinguish money held by you and held by your company. Funds set aside for company tax, income VAT or income tax will not count towards the figure lenders assess.
It is worth getting in touch with a Mortgage Broker before you declare your income too sometimes to ensure that you are going to achieve the mortgage that you desire or have been working towards.
How can a Mortgage Broker help me as a Contractor?
We are Whole of Market Mortgage Advisers and have access to products not available on the high street and exclusive deals through our Network Quilter Financial Planning Ltd.
There are a range of different interest rates out there and no matter what contract rate you are on even as a First Time Buyer there will be a mortgage deal out there for you. Mortgage brokers can guide you through the application process as well as explaining terms you might not understand like ‘stamp duty’.
The market constantly changes and new lenders with new products arise daily, a broker keeps up to date with these changes and can tailor the products they chose for you to meet your needs. A broker can help guide you to the mortgage for your situation no matter what it may be.
Buy to Let mortgages are not regulated by the Financial Conduct Authority.
Your home may be repossessed if you do not keep up repayments on your mortgage.