Are there special mortgages for contractors?
Last Updated: 17-08-2023
Reading Time: 6 minutes
Are there such things as 'contractor mortgages'? Without wanting to sound like Richard Harris's Dumbledore in The Philosopher's Stone, "Yes. And no."
Let's start with the 'no' bit.
The repayment mechanisms are essentially the same across the mortgage industry for all borrowers. It's getting past the application part that's often the problem for independent professionals.
But it needn't be!
If a contractor goes through a reputable, specialist broker, they should be treated no differently than PAYE employees, with access to similar:
- mortgage terms;
- interest rates;
- deposit requirements.
So, why do most contractors struggle to convince lenders that they can afford the mortgage they know their income warrants?
You're a square peg aiming for a round hole
Let's boil the 'affordability' conundrum down to its most basic.
Most High Street lenders and generic brokers push two types of mortgage underwriting: employed and self-employed.
As a professional contractor, you're both. And neither.
As such, over-the-counter and call centre staff simply don't understand your income, so fail to identify your borrowing potential.
This is problematic!!
At best, you fail to get the mortgage you want.
At worst, you don't, and get an imprint on your credit file, to boot. That black mark may deter lenders who could have otherwise helped you.
So, what's the answer?
The Specialist Broker difference: bespoke underwriting criteria
A specialist broker knows how to best highlight your affordability to a similarly specialist underwriting team at a lender's head office. Not that you'd know it, but most lenders have contractor-friendly teams and bespoke contractor lending criteria.
The problem contractors have is accessing them. Without this access, you're restricted to the 'employed or self-employed' merry-go-round. You'll rarely convince a 'vanilla' mortgage adviser that you're good for the mortgage you know you can afford.
This is where contract-based underwriting comes in, and it's this process that's categorically different.
Use our Contractor Mortgage Calculator
The most frustrating part for everyone in the contractor mortgage chain is that the formulae—or lending criteria—for contract-based underwriting aren't complicated.
They work on your gross, top-line contract day rate 'annualised' into a salary equivalent. Then, they add an affordability multiplier to produce a guideline figure up to which you can potentially borrow.
We've condensed those criteria into our calculator. Simply slide the button until you reach your contract day rate; your potential borrowing will scale as you go.
Contractor Mortgage Calculator
How much can I borrow on my daily rate?
Potential Borrowing = £
If that's an amount you can work with, hit the 'Get your quote now!' button and fill in the form.
Do I need trading history, accounts or payslips?
Did I say that the most frustrating part is that contractor mortgage affordability formulae are simple? I'll take that back.
The most frustrating part is that the 'evidence of income' most contractors need is often less than their permie peers need to produce. So, to help our specialist underwriter contacts verify your income we'll need from you:
- a copy of your contract;
- an up-to-date CV;
- three months' bank statements;
- proof of ID: a utility bill, passport or driving license.
That's it. We will do the rest.
Putting you at the heart of the equation
In recent years, we've established ourselves as a leading, pioneering, innovative resource for contractor mortgages and contract-based underwriting.
We've achieved this by building key, strategic relationships with risk and underwriting teams. It's not just about the lender. Getting you the best mortgage for your unique contractor status is about knowing:
- the applicant,
- their unique circumstances,
- which lender will accommodate them best, and
- which underwriter will interpret the information we give them for the best possible outcome for the client.
Freelancer Financials remains a family-owned, multi-award-winning, 100% independent specialist mortgage broker. That means we can approach any lender on your behalf!
But in all probability, our advisors are so 'finger on the pulse' that, as soon as you outline your situation and what you need, they'll have formed a shortlist of options for you in their head.
Our experience enables contractors to navigate shifting trends and growing complexities. As affordability issues continue to permeate all aspects of the mortgage landscape in new ways, our advisers play a more critical role than ever in guiding contractors towards the most suitable products for their individual circumstances.
Contractors get few enough breaks, these days. Put yourself first for once: let us do the heavy lifting. Our decades of experience will filter out the irrelevant and get you the best mortgage for your unique situation. That's our specialism; we're dying to hear about yours.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.
Posted by John Yerou
on August 17th, 2023 10:34am in