Barclays Bank contractor mortgage lending criteria
Barclays is one of the ‘big five’ UK banks to have improved its self-employed mortgage lending criteria. Those criteria now better benefit limited company, umbrella and agency contractor borrowers. This includes, but isn’t limited to, affordability multiples averaging out at 5 × an applicant’s gross income.
Why Barclays is more competitive for contractors
Specific lending criteria for how each contractor type can be found below. But Barclays has made three recent significant changes to its contractor mortgage criteria:
- Barclays now calculates mortgage affordability using the day rate for up to 90% LTV;
- (the previous cap was 85% LTV)
- Multiple shareholders of a limited company can now apply for a joint mortgage as long as both appear on the mortgage application;
- (previously, Barclays only allowed one shareholder per application, often leading to the bank rejecting couples who jointly ran their business);
- Contractors can now work more than one contract (previously restricted to one), but cannot exceed 48 per week (for affordability purposes).
Documenting income for all day-rate contractors
Unlike some lenders, Barclays accepts contractors from all professions, and is not restricted to IT or oil & gas contracting. These are the contract history details Barclays expects the applicant to provide:
- work history showing no more than a 6-week gap between contracts;
- evidence of at least:
- 12 months’ contract history, or
- two contracts, if their latest contract covers less than 12 months;
- evidence of at least three months remaining on their current contract, or a successive contract or an extension.
Previous employment exception
The only exception Barclays will make to the contract duration rules above, is where the applicant has recently moved from employee to contractor, and provides services to their previous employer. In this case, Barclays will require:
- the client/employer to confirm that they employed the applicant for at least 3 years before they became a contractor;
- a copy of the service contract showing terms of remuneration, the duration of the contract, and conditions of cancellation or termination.
Calculating income for umbrella, agency or fixed-term contractors
For contract workers who are employed on a PAYE basis (e.g. via an umbrella company or agency), Barclays use the following calculation:
First, the bank calculates income using three months’ (or equivalent) pay slips, taking an average where necessary. Then it includes any holiday pay issued during this period within the average. Finally,the bank will also consider any form of variable pay or bonus within the calculation.
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Self-employed (limited company) contractor mortgage affordability
For self-employed contractors, how their business is structured dictates how affordability is calculated. Where the applicant meets all of the requirements below, they qualify for the daily rate calculation:
- They are paid via a limited personal service company;
- That limited company employs no one but the applicant(s) themselves;
- The applicant(s) own 100% of the company’s shares;
- The applicant’s current contract grosses at least £50,000 per annum, or £218 per day;
- The applicant has at least 10% deposit (the mortgage LTV ratio is ≤90%).
How to use your day rate for the mortgage affordability calculation
Barclays will ‘annualise’ your day rate to achieve a base affordability figure. It works like this:
- Identify the lower of the following:
- your average day rate (excl. VAT) from the two most recent contracts, or
- your most recent day rate (excl. VAT), or
- your actual income shown on the bank statements;
- Multiply the relevant figure from 1. × 5;
- Multiply the result of 2. above × 46 to give the annualised figure.
If your contract states you charge an hourly rate, Barclays’ assume you work a 40-hour week to produce your weekly income. If your contract states you work fewer hours per week, the bank adjusts the calculation accordingly.
Whatever your weekly income, multiply the amount × 46 to arrive at your ‘annualised’ income. This is the figure underwriters will use for your affordability calculation.
Day-rate contractors will also need to provide their latest three months’ personal bank statements. These must show your income credited to your account.
In addition, limited company contractors must show their latest three months’ business bank statements, showing the same.
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Specialist mortgages
Barclays offers two types of mortgage that make securing a mortgage, and paying it off, more flexible.
Mortgage Boost (JBSP mortgages)
Barclays supports Joint Borrower Sole Proprietor (JBSP) mortgages. These are great options for helping family members onto the property ladder when their income alone might not be enough.
This type of borrowing allows you to buy a property with the help of other people, including your parents. Combining applicants makes it easier to qualify for a mortgage, but only one person owns the property.
Offset mortgages
Barclays are one of the few lenders still offering offset mortgages. These allow borrowers to link their current and savings accounts to their mortgage account.
Borrowers can offset the total balances of their linked accounts against the mortgage repayment due each month. Offsetting in this way enables borrowers to either reduce their monthly payments or to more quickly pay off their mortgage.
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Age restrictions
Barclays impose the following age-related restrictions on mortgage applicants:
Any mortgage term cannot exceed (in length) the oldest named applicant's 80th birthday.
If an applicant's retirement age exceeds 70, Barclays' underwriters may want to review the application and ask for further supporting documentation.
Applicants must evidence their pension income if the mortgage term lasts beyond the age of 75.
Zero-hours contract workers
The bank will also consider Zero-hours contractors. However, zero-hours workers must prove that they have/can sustain their income at the level required for their specific mortgage application.
Foreign nationals
Barclays offers mortgages to foreign nationals working in the UK. but applicants must meet the residency, income and savings requirements below.
Foreign nationals - residency criteria
Applicants must be resident in the UK at the time of application. Applicants who have lived in the UK for more than two years may qualify for a mortgage up to 90% Loan-to-Value (LTV). Those that have lived here for a shorter time may qualify for a mortgage up to 75% LTV.
Foreign nationals - income criteria
Single applicants must have a minimum income of £75,000, joint applicants must have a minimum income of £100,000.
Foreign nationals - savings criteria
Applicants must have a minimum of £100,000 or currency equivalent in savings or investments
Foreign nationals - Buy-to-Let criteria
Applicants for Buy-to-Let (BTL) loans must have UK/EEA citizenship or a permanent right to reside in the UK and must have lived in the UK for at least two years
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