Knowledge

Mortgages for contractors: how to prepare for your application

Posted on Sep 28th, 2018 | Personal finance

Contractor Mortgage myths Webinar | Crunch

Getting a mortgage when you’re a contractor isn’t quite the impossible task that many people are led to believe, and there are some tall tales floating about with regards to what your obstacles are.

Here, Jamie Challis (Head of Crunch Mortgages) reveals the five biggest myths that contractors wrongly believe apply to them when talking about getting a mortgage.

Plus, we give some great tips on how to get that elusive mortgage, and how we can help.

Contractor Mortgage Myths

Contractor Mortgage Myth 1: Contractors do NOT need to have three years of accounts to get a mortgage

Contrary to popular belief, contractors can actually get a mortgage based on their day-rate.

Crunch Mortgages work closely with contractor-friendly lenders, and this enables us to arrange a mortgage based on your current contract, rather than the number of years you’ve been working as a contractor.

Contractor Mortgage Myth 2: Contractors do NOT need to have been contracting for at least six months

Our specialist lenders can help – even if you’ve only just taken the leap from a permanent position and have been contracting for as little as one day.

Contractor Mortgage Myth 3: Contractors are NOT labeled as high risk by banks and building societies when it comes to getting a mortgage

Contractors aren’t viewed as a high risk any more than a full-time employee. A contractor will be assessed in the same way as an employee; your self-employed status won’t hold you back.

Contractor Mortgage Myth 4: Contractors do NOT need a large deposit

Of course, having a large deposit will mean you represent less of a risk for mortgage lenders, and it’s natural to expect a more competitive mortgage deal with a bigger deposit. However, you can put down as little as 5% and still be positively assessed for a mortgage.

Contractor Mortgage Myth 5: Lenders will NOT charge contractors a higher mortgage rate than permanent employees

As a contractor, you may even receive lower mortgage rates if you’re in a better position to put more savings aside and can provide a larger deposit.

Contractor Mortgages Webinar

If you’re looking for more reassurance, this recent webinar gives detailed tips on getting a mortgage as a contractor, freelancer or limited company director.

How to prepare your contractor mortgage application

If you have further questions, you may be interested in reading the self-employed mortgages Q&A which took place after the webinar, in which Jamie answered questions from people just like you.

Mortgages for contractors Q&A

Q: How to I start the application process?

A: Contact us initially to discuss your circumstances and we can then tailor some mortgage options for you.

Q: Does the mortgage need to be in my personal capacity (as an individual) or can it also be in my limited company’s name?

A: Yes, the mortgage would need to be in your personal name. It’s possible to buy investment property via a limited company, but this would tend to require a special purpose limited company to be set up purely for the owning of the let properties.

Q: What if my day rate is under £500, and I only have a three month contract? Does the current contract value need to be over £75k, or is that for the whole year?

A: A three month contract isn’t necessarily an issue. The lender will look at your overall experience. If you have two years experience within the industry, a three month contract can be accepted. As a minimum, your income should equate to £75,000 or more based over 48 weeks of your contract rate.

Q: Is it possible to get a short-term loan e.g. 3 – 5 years if I’ve recently started contracting, and I don’t have enough in the money for a director’s loan. This is for home improvement.

A: The minimum mortgage term you can take will be five years, and it’s quite common to take this for home improvement.

Q: I took out a mortgage two years ago, while a full-time employee. I’m looking to remortgage in the next few months, after the introductory rate changes. I might be limited in my provider (as I live in an ex-council flat) – I had to go with Nationwide as many other providers wouldn’t cover the building. What options do I have? I switched to contracting six months ago.

A: There are other lenders who can consider ex-council flats. The key criteria will be how long your contract is for. As a minimum, you’d need another six months of contract to remain so that we have a 12 months continuous contracting period.

Q: My wife and I currently have a mortgage but as we’ve had a baby in the last year and my wife isn’t going back to work, I’m the sole earner. Our fixed term mortgage ends in June 2019, and I’m wanting to go freelance as a photographer in the next six months. How will this affect renewing our mortgage or taking out a new one?

A: If you’re working on a freelance basis, this will impact on your ability to qualify for a mortgage, until you have at least one year of finalised company accounts. However, in this instance we’d generally look at switching products with your existing mortgage lender – this can generally be done without the lender having to consider your income situation.

Q: I’m married and have a joint mortgage, my partner is a teacher in full-time employment. Does this affect my options? You mention exclusive offers for contractors – would joint mortgages be possible there?

A: This does not impact on the mortgage at all – we can factor in many different forms of income – contractor, self-employed, employed, etc. In terms of exclusive products – these rates aren’t just limited to contractors – they’re available to self-employed and employed clients too.

Q: I work remotely (not in the offices of my clients), but have clients who pay regular amounts. I don’t have contracts of work in place (it is month-to-month work). Without a contract, are my earnings considered or used for a mortgage evaluation?

A: We’d need to approach this from a self-employed income basis, looking at your accounts & Self Assessment income verification. As a minimum, you’d require 12 months finalised accounts available.

Q. As the director of my company (no other employees), I have a small salary – but make up the majority of my earnings through dividends. Are they considered as my ‘total’ earnings, and what amount could I borrow based on Salary (alone) Vs Salary+Dividend?

A: Most lenders will consider your salary plus dividends as your total earnings.

Q: Does it help if you can put down a larger deposit, e.g 7% or 10%?

A: A bigger deposit certainly helps. You’ll obtain better interest rates with a bigger deposit.

Q: My partner has just finished her contract and is taking a break – would it best for her to find a contract before starting the process (both of us contract)?

A: It’s not advisable in taking an extended break when considering applying for a mortgage. If not in a contract, we would have to base all lending on only one of your incomes.

Q: I’ve been in contract assignments from January 2018. Contracts have run back to back, usually three months, but I’m about to start a six months contract. When do I become viable for a first mortgage?

A: Potentially as soon as the new contract starts. We’d need to gather more detail to answer this fully.

Want to find out more?

If you’re looking for some more information on getting a mortgage as a freelancer, contractor or small business, check out our helpful checklist: Getting a mortgage when you’re self-employed.

If you have any further questions, don’t hesitate to get in touch with us at Crunch Mortgages.

Join Crunch Chorus:
The free community for the self-employed

You'll get access to a range of benefits, such as invoice software, jargon-free business guides, great networking opportunities, discounts, plus much more

Written by Tom West

Useful tools and resources

Business guides

From understanding expenses to starting a limited company, we've a range of jargon-free business guides for you to download and keep.

Invoicing software and templates

Create, send and store sole trader invoices in a snap with our free invoice software. You can also download a selection of invoice templates for all business types.

Take-home pay calculator

Use our Take-Home Pay Calculator to work out your true earnings and see if you could save money with a different company set up.