If you’re contracting for a living, getting a mortgage is a lot tougher than you might expect. Thankfully, there are a number of ways to get your financials together and buy a property like a regular employee.
Walk into any high street bank looking for a mortgage and no matter how big your deposit is, they’re going to be nervous about lending you money. May high street banks refuse contractors outright, or their rates will be excessive to say the least.
This is because they’re only set up for people with a regular income from permanent employment, and because that’s what their staff are trained to deal with as well.
This is why freelancers, contractors, consultants and tradesmen often go through contractor mortgage brokers in order to get a decent mortgage like everybody else.
Get Your Financials in Order
But before you start calling up mortgage brokers to get you a good deal, as a contractor you need to account for a number of things, just like a permanent employee, plus a few more.
High street banks base how much they will lend on percentage, times salary plus dividend. For tax reasons, both those figures wil be low for many self-employed people, but this can mean that it’s difficult for contractors to get the mortgage that they need.
This is why a good broker or mortgage provider will calculates mortgages on daily rates or gross revenue for contractors instead.
For example, the Halifax will accept the gross value of the contract as evidence of income whether you’re employed, self-employed or being paid through an umbrella company. The only condition is that you need to have been contracting for at least 1 year.
It’s also a good idea to show them the best contracts you’re working on to give them an idea of how much you actually earn. You will also need a good credit score and demonstrate evidence of consistent contracting for the future.
However, before you walk into a high street bank, it’s always worth talking to a broker to see if they can negotiate a better deal on your behalf. Sometimes a good broker will eat into their sale commission a little to get you what you need rather than lose you as a customer.
When choosing a broker make sure they are working for you and not the lender. This is because many brokers get an incentive from the lender based on the interest rate the loan is sold at. So it can be difficult to figure out if the advice you’re getting really is impartial.
If your partner has a high enough income from permanent employment you may find that they can get a better interest rate than even a joint mortgage with someone self-employed. This is because contractors are considered a higher risk by many banks.
Also, if you trade as a limited company, ask your accountant about the necessary paperwork as an employee not a director. This can open a few more doors when it comes to borrowing large sums of money. However, this is a little more involved, so it’s always best to have a chat with your own financial adviser about how this works.
There are also ways to invest in properties on behalf of your limited company and effectively rent the premises back to yourself. But once again, it’s best to talk to an accountant about how all this works while ensuring that you stay honest in your business practices.
It’s always worth reading the small print, but in the case of contractor mortgages, check for any mortgage related insurance policies for things like redundancy or loss of earnings cover. This is because you may find that your lender will not pay out if you are self-employed.
You may also find that you are paying a premium for those policies. And since you cannot claim on them, you might be able to change them or save money by simply cancelling them.
So be sure to get all your accounts in order, demonstrate at least 12 months of consistent contracting, have a good credit rating and look at all the options from both banks and brokers. Then simply take your pick of the best offers that suit your circumstances.
Finding a contractor mortgage that’s right for how you generate income may take a little bit longer than the average mortgage, but that’s not to say there isn’t a good deal out there if you don’t do some digging around.