Who should get a contractor mortgage?
Along with the rise of outsourcing has come enormous growth in the number of people working as independent contractors. Unfortunately, people working in this way often find they need 3 -5 years’ worth of income records to secure a mortgage. Something that often puts them at a disadvantage.
Whilst there is no such thing as a specific contractor mortgage, mortgage lenders are becoming increasingly aware of trades that fall outside of salaried employment. The way in which lenders will assess your application and the lending criteria has become less rigid, especially if you have supplied the required supporting information.
How do contractor mortgages work?
Before we go into detail about how to arrange a contractor mortgage, it’s important to note how they differ from the kind offer on the high street. The critical difference is that when applying for a high street mortgage, contractors need 3-5 years of accounts. High street lenders will also expect you to have a consistent income and will judge you on many factors that favour the full time employed.
Unfortunately, this can cause problems for anyone not employed in traditional full-time terms. Both relating to acceptance and the rates that you can expect.
Yet, a contractor mortgage is different. This is because the mortgage brokers that offer them do not need you to provide these three years’ worth of accounts. Also, such a mortgage will not penalise you based on a system, bias towards those in full-time employment. This means by choosing a contractor mortgage, you can both maximise your chance of acceptance and obtain the most suitable rate,
How to arrange a contractor mortgage
There are five stages to applying for a contractor mortgage that anyone considering applying needs to know about.
Stage 1: Find a mortgage broker
The first stage is to find a mortgage broker who is familiar with arranging contractor mortgages. This is crucial because it is our expertise that will help improve your chances of acceptance.
It is best to find and start working with a mortgage broker as soon as possible. Then this will allow them to get access to the best possible rates.
Step 2: Gather relevant documents and information
Like any mortgage application, you will need to provide relevant documents and information to your broker. First, you will need to have evidence of your income and what you spend. This allows us to assess how much money you will be able to afford to pay back with your mortgage.
You will also need proof of ID, proof of address, and evidence that you have the money for your deposit. Additionally, you will need a copy of the contract you are working on, as well as proof of past contracts. You may also need your current CV.
Finally, you will also need 3 months of business and personal bank statements.
Stage 3: Secure an agreement
Stage three is all about securing a provisional contractor mortgage agreement. This means you will need to submit to credit checks and provide details of your income. This is actually a good thing because the more detail you can provide to us here, the better the chances are that your offer will stand, long term.
We will best understand the level of detail needed here. Thus making us an ideal partner in the process.
Stage 4: Begin your property search
This is where you get to begin your search for a property that you would like to buy. The good news is that because you have a provisional mortgage agreement in place, you can act as soon as you find your dream home.
Stage 5: Secure your mortgage offer
Stage five is different from stage three because you will receive a formal mortgage offer. This is one that is secure, but it only lasts for 3 to 6 months, meaning you have to complete, find and put down a deposit on your property in this time.
After these tasks are complete, the offer will pass to your solicitor. They will then receive a list of all the things that need doing before the money can be available for the date of completion. Once these extra requirements are complete, the sale can go ahead.
Common contractor mortgage FAQs:
Below we have collated some of the most common questions about contractor mortgages.
Do high street lenders give mortgages to contractors?
Yes, some do. Yet, securing a mortgage through a high street lender as a contractor can be very challenging. This is because high street lenders assess applicants on criteria biased to the full-time employed.
Those working on a contract basis also need to be careful when investigating the mortgages that high street banks can offer them. The reason being that once provided a formal mortgage proposal it will show up on their credit record. Therefore it can affect their rating, even if they don’t take it up.
Additionally, high street lenders will need 3-5 years worth of accounts for contractors and the self-employed. A rule that is not always possible for contractors to fulfil. Especially if they receive their income from company dividends or at new to freelancing.
Do contractors need 3-5 years worth of accounts when applying for a mortgage?
No, not if they go through a specialist contractor mortgage broker. In fact, you will only need 3 months worth of personal and business accounts.
Do lenders offer a less favourable rate to contractors?
It is a misconception that contractors receive less favourable rates. High street lenders may view a contractor as higher risk, which may reduce the number of lenders available. The good news is that there are specialist lenders who will work with contractors at competitive interest rates.
Being a contractor does not mean that you will always find securing a mortgage difficult. In fact, instead of dealing with the restrictive rules of highstreet lenders choose to work with a specialist broker instead.
Your home may be repossessed if you do not keep up repayments on your mortgage.