The instincts of most contractors, when faced with the question of how to obtain a mortgage, are overly pessimistic. Mortgages for the self-employed are generally viewed by those in search of them as unrealistic pipe dreams, reserved only for the lucky few.
But are these sentiments of doom a realistic assessment of the current contractor mortgage market? Or is it the case that mortgages for self-employed individuals are actually relatively easy to obtain, provided you go about applying in the right way?
Contractor mortgages used to be a tough sell
It’s true that in the past contractors in search of a mortgage had a big hill to climb. Providing and proving your income as a self-employed person is much more difficult than for a person in employment who merely has to state their regular salary.
For this reason lenders saw contractors as greater risks and charged higher fees to cover that risk. In the aftermath of the financial crisis lenders also became much more wary of any perceived credit risk and restricted their lending to only the surest bets, making contractor mortgages doubly difficult to obtain.
In the past few years though banks and building societies have been unable to ignore the growing army of people who make their living from self-employment, and who often earn more than their employed counterparts. Along with the recovery in the UK housing market, that means that prospects for contractors are looking much rosier.
All the mainstream lenders now offer contractor mortgages, which are often no more expensive than regular mortgages, and are much more likely to approve applications than in years gone by.
Specialist mortgages require specialist knowledge
Contractor mortgages, like buy-to-let mortgages, are a specialist mortgage product where lenders use a different set of criteria to judge an application from those they’d use for a standard mortgage. Whereas if you were in employment a lender would make a decision based on a few simple factors like salary and LTV, when you’re applying for a contractor mortgage there are a number of other things they need to consider:
- How many years you’ve been contracting;
- Your level of retained profits;
- The rates you charge;
- The duration of your contracts;
- How many contracts you expect to complete each year;
- If you run your business as a limited company or under an umbrella company from which you pay yourself a nominal salary, then what are your real earnings?
A mortgage broker can ease the process
Modern mainstream lenders are large organisations so the chances are that the call centre staff you speak to on the phone aren’t very familiar with them and won’t necessarily be able to provide you with sound advice regarding your application.
A mortgage broker with experience in contractor mortgages on the other hand can not only help you make sure you have all the documentation you need but also help you present your earnings in the way that lenders want to see them, greatly improving the chances that your application will be successful.
They’ll also be able to give you good idea of whether your application will be successful or not – a good thing since all applications end up recorded on your credit history.
Using a mortgage broker to apply for a contractor mortgage is therefore well worth it. Just be sure to make sure you understand the fees that they charge, how much of the available market they cover and that they’re authorised by the Financial Conduct Authority (FCA).
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