Too many contractors have had the sad experience of going to a high street bank and trying to obtain a mortgage. It's not a pleasant experience, and here at ContractorCalculator we are happy to say that we can help you to avoid it.
Why high street banks are a poor mortgage option for contractors
What invariably happens is that the contractor explains who they are, and what they do. The 'customer representative' will explain that since the contractor does not have a full-time job, or insufficient self-employed earnings over 3 years, and the bank won't consider the mortgage.
The fact that the contractor has a much higher income, and solid documentation for that income, doesn’t come into the picture as that is not in the list of questions. It doesn't matter that the contractor has a perfectly clean credit record either. It's frustrating to say the least.
Eventually, some banks will offer a contractor a so-called ‘Agreement in Principle’ by looking at the activity on their bank account, which involves no verification of income and sparse questioning at best.
The problem arises when the same contractor goes back to the bank when they need to put in an application, and the bank declines the mortgage despite the ‘Agreement’ they originally issued, when the contractor actually needs it.
Don't want to get turned down? Read our great tips to securing a mortgage.
Opening a channel
But contractors do not have to endure the indignities of high street banking. Specialist brokers get what you do and how you earn. They have direct access to underwriting teams that understand contracting. These underwriters are not accessible to applicants directly, because the broker is expected to have correctly vetted the contractor before submitting any application.
Specialist providers have developed bespoken underwriting for contractors and all those who have problems fitting into the mould created by the financial institutions. Over the years , these providers have built up contacts with a lot of the big lenders (see our guide to preferred lenders) and can now arrange a suitable mortgage for most contractors that fits their profile of income, available deposit, length of time contracting and credit history.
Avoid generic applications that are unlikely to categorise you as a specialist borrower. Specialist contractor brokers will take a close look at your yearly income and may even discover that you earn more than your PAYE counterparts. Plus, they’ll liaise with the underwriters on your behalf. High Street Banks and generic brokers simply do not have these relationships in place, often fail to even identify you as a specialist borrower in the first place.
How to get the mortgage
If your accountant is doing his job right, you may not draw a large salary, since you take income in other ways. So providers use an annualised multiple of your contract rate: if you are earning a certain number of pounds an hour, or pounds a day, then they calculate an annual income for you. With this approach, they can obtain quite a choice
for a contractor, the same kind of choice that a permanent employee would have.
This kind of service is not only available to contractors at the high end of the salary range. Many providers can work with every type of contractor regardless of how much they earn, regardless of the tax vehicle they use to pay themselves.
Every contractor, no restrictions
Providers can offer mortgages which offer maximum flexibility - some mortgage schemes allow you to overpay the mortgage during the time you work, then to use the equity during the time you are not working.
Some contractors, perhaps because of the intermittent nature of their work, experience credit problems. This, however, does not prevent them from finding a mortgage via specialised advisers.
The essential factor is to find a contractor-focused intermediary who both understands the way that contractors work and is able to open a channel to lenders.