Can I Get a Mortgage as a Contractor? And Other Common Contractor Mortgages Questions Answered
Finding a mortgage as a contractor brings up a ton of questions for most self-employed workers. Some may even think they’ll not qualify for a mortgage unless they’re on someone else’s payroll. That’s not true!
In part two of our contractor mortgage series, let’s take a look at the most common questions we come across in conversations with our clients.
Remember, if you want a quick overview of how contractor mortgages work, hop on over to part one in the series.
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Can I Get a Mortgage as a Contractor?
If you have a steady income and a history of working in your industry before you started contracting, then you can apply for a mortgage as a contractor.
Check out part one of this series Getting a Mortgage as a Contractor for the detailed lowdown on getting a mortgage as a contractor.
Do I Have to Have 3 Years of Self-Employed Accounts to Apply for a Mortgage?
Lenders used to have the requirement that self-employed people must provide several years’ company accounts to prove stability of income before a mortgage application would be considered.
However, more and more mortgage providers are making a change to reflect the growing number of self-employed contractors and freelancers that make up the national workforce.
Most require two or three years’ company accounts but some will consider 12 months in some circumstances. Specialist lenders may offer favourable rates to self-employed workers, but you might not find them on the open market.
Speak to an independent mortgage broker before choosing a provider to make sure you’re getting the best self-employed mortgage deal. An independent broker is guaranteed to find the best deal for you: they have whole of market access and offer truly impartial advice.
Do I Have to Have a Current Contract to Apply for a Mortgage?
Even if you’ve been working regularly for several years through your limited company, it is unlikely you’ll be able to access the best mortgage as a contractor if you don’t have a current contract.
You may, however, apply based on your company accounts if you’re between contracts. Try to avoid having a break of anything more than a few weeks between contracts in the 12 months prior to your mortgage application.
Can I Get a Joint Mortgage as a Contractor?
It’s absolutely possible to get a joint mortgage with your partner or even your friends if you’re buying a house together.
You’ll need to provide the same information for the lender as you would applying for a single mortgage; however, having someone else on the mortgage may increase the amount you can borrow. You’ll also be able to save a larger deposit between you, which could reduce the cost of the mortgage, fees, and interest overall.
Do I Need to Save a Bigger Deposit to Buy a House as a Contractor?
In most cases, you can save the same deposit as anyone else to apply for a mortgage and buy a house. However, some contractor-friendly lenders will cap the loan-to-value limit at 80-85%, which means you may need a larger deposit for this type of mortgage.
Remember that saving a larger deposit – at least 15% or 20% of the total house price – will also reduce your mortgage repayments and costs.
What Are Contractor Mortgage Rates Like?
Contractor mortgage rates are similar to those available for salaried employees, although some may be slightly higher. However, the benefit of choosing a contractor-friendly mortgage lender is their specialist knowledge of your lifestyle as self-employed person. They recognise, for example, that your true income is higher than what you take as salary + dividends from your company.
Take a look at the table below for a live example of today’s best mortgage rates.
What’s the Maximum Loan-to-Value Ratio for Contractor Mortgages?
The loan-to-value (LTV) ratio is the mortgage amount compared to the property value.
For example, if you want to buy a house for £100,000 and have a £20,000 deposit, you need an £80,000 mortgage. This would be a loan-to-value ratio of 80%.
The LTV may be restricted by some lenders for contractor mortgages. This is due to the perceived additional risks associated with daily rate-based income calculation for a self-employed contractor. However, there are many mortgage providers out there willing to offer mortgages without this cap.
You could find a mortgage provider willing to provide a 95% LTV on a contractor mortgage – they’re out there, you just need to know where to look!
Can I Get a Mortgage Through My Limited Company?
It’s unlikely that you can apply in the name of your limited company for a mortgage on your personal residence.
If you’re buying property for your business, the circumstances are different. This includes if you’re planning to purchase buy-to-let property as a revenue stream for your limited company.
Speak to us to find out more about your options for buying property for your business.
My Fixed Rate Term is Coming to an End – Can I Remortgage As a New Contractor?
If you’ve switched from paid employment to contracting in recent months, you may be worried about remortgaging options as a new contractor.
You could stay with your current provider and chose from the options available there. They won’t normally ask about your income situation – you’ll only need to provide evidence of income if you’re changing something about the mortgage, for example the term or the mortgage amount. However, staying with your existing provider will limit the choice of deals you can take.
Alternatively, as long as your contract is confirmed for a minimum of 6 to 12 months, you could remortgage with a specialist contractor mortgage provider. This will help you access different rates and deals that could save you significant money in the long term.
How do Mortgage Brokers Help Contractors Get a Mortgage?
Independent mortgage brokers have access to whole of market deals for contractors. That means they can also find deals that aren’t available to you, as a customer, if you went looking for them yourself.
What they recommend will always be the option that’s in your personal best interests, helping you to secure a great deal that could save you thousands of pounds.
For contractors, mortgage brokers offer an extra level of help. They can act as a mediator between you and potential lenders. They’ll be able to ask questions based on your personal circumstances without it affecting your credit score or chances of getting a mortgage accepted.
An independent mortgage broker also has the opportunity to ask for policy exceptions in some cases. For example, if you’ve not been contracting quite long enough to qualify for a mortgage with a particular lender, a broker can help to negotiate a mortgage for you.
Speak to an independent mortgage broker today if you’d like access to better mortgage deals as a contractor.
A few years ago, there were only a handful of lenders, who could assess contractors’ income based on daily rate. Today there are dozens of lenders, which makes the market more competitive. As an example, another specialist lender has recently joined https://www.peppergroup.co.uk/about-us/latest-news/pepper-money-introduces-day-rate-contractor-calculations.
To get a feel for how differently lenders treat contractors, check out their mortgage lending criteria:
As a matter of fact, Virgin and Clydesdale have agreed to merge, which will create a bigger contractor mortgage lender http://www.mortgagesolutions.co.uk/news/2018/06/18/clydesdale-group-seals-1-7bn-virgin-money-takeover/.