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Luke Atkinson from Heritage Mortgages joins the Mortgage and Protection podcast to discuss mortgages for contractors.
Can you get a mortgage if you’re a contractor?
Yes, you absolutely can get a mortgage as a contractor. Heritage mortgages help many contractors every month get funding from lenders. A contractor mortgage is simply a mortgage where the lender accepts that one or more of the applicants are not employed under a permanent employment contract.
You could be employed for a fixed period of time or it can be flexible on the part of the employee and the employer. Lenders will want to understand the sustainability of your income and the onward affordability for your mortgage. This can mean it takes a little bit more investigating before making an application to a lender.
Which banks give mortgages to contractors? Are they normal high street banks?
Actually, all banks will accept contractors for mortgage lending, but the critical factor is how they assess your income. Many contractors will have set up a limited company for tax advantages which, in turn, means some lenders will then treat you as self-employed. Often this means that your borrowing capacity is drastically reduced, due to the way they assess a limited company director’s income.
Some lenders, however, will take the gross value of your contract as the income figure, which often means they offer higher borrowing amounts to contractors. So it’s really important that your application is packaged in the right way to the right lender – which is where Heritage can help.
How much can contractors borrow on a mortgage?
Contractors can borrow at the same loan-to-income multiples as someone in a permanent role. This is up to 4.5 times income with most lenders. However, a few will go higher if needed.
How do contractors go about getting a mortgage?
The best way is to use an experienced professional broker like Heritage Mortgages. We can assess how your income is structured and advise on the best way to present it to the lender. We can also recommend the lenders who will be most accommodating for your individual circumstances.
How is a contractor’s income assessed for a mortgage? Can it be based on a day rate?
Many lenders will accept the daily rate figure shown on your contract or the assignment schedule. They often take the day rate and multiply it by five, to calculate gross weekly income and then, depending on the lender, they will multiply this weekly total by 46 weeks. While you can sometimes be assessed on 52 weeks work a year, many lenders assume you will take holiday or sickness time and allow 4-6 weeks for this.
They take this final figure as your annual income, and base the loan-to-income calculation on it – so you can borrow 4.5 times that figure, or sometimes 5 times.
How can I strengthen my mortgage application as a contractor?
The main thing is to be aware of typical lending criteria and make sure you fit them. For example, most lenders look for at least six months remaining on the existing contract. They’ll expect you to have at least two years experience of working in a similar role and may ask to see your CV to prove this.
Lenders will also expect you to have no recent credit issues. However, there are a couple of specialist lenders that will accept day rate contractors with minor adverse credit history.
Can I get a contractor mortgage when I’m buying with someone else?
Yes, you can get a joint mortgage as a contractor. Each applicant’s income will be underwritten by the lender on its own merits. So if your partner, for example, is employed on a permanent contract and you are a contractor, the lender will apply the criteria for each of the different types of employment for each applicant.
How can a mortgage broker help if I am a contractor?
A broker can advise on how your income should be packaged and which lender will be most accommodating to your individual circumstances. Not all lenders will take the day rate; some will, but deduct business or travelling expenses. Some may offer a reduced loan-to-income calculation for direct contractors, as they might see a higher risk of the income sustainability being interrupted at some point in the future.
All of these extra areas of focus can be advised on by an experienced broker like Heritage Mortgages. Plus, we can ensure that any contract is applied to the lender in the right way, first time round. That means there are no delays in getting your binding mortgage offer, which is obviously the goal for every mortgage application.