Santander might be a great mortgage lender for permies on a PAYE salary. But for a contractor looking for a mortgage based on their gross contract rate or net profits? Then Santander is not the ideal bank for you…
…at least not if you want to buy a home that matches your earning capacity.
It can get complicated. Technically, a contractor could get a mortgage with Santander. And with the resources it has, you’d think the bank would be a safe bet:
- 1,000+ branches in the UK;
- those branches manned by 20,000 staff;
- and its legacy accounts:
- Bradford and Bingley;
- Alliance and Leicester.
But no. In this case, big isn’t beautiful. The bank’s advisors can only offer you a mortgage on a self-employed basis. And that route is both painful and demeaning to contractors. But there is a better way.
Why using accounts to prove income crucifies limited company contractors
Using accounts to evidence income bypasses rather than leverages a contractor’s potential.
A Santander mortgage advisor would ask you for your accounts, two years’ worth at that. They’d then work out how much you could afford to borrow using salary and dividend drawings.
Contractors earning more than £35k a year use limited company payment structures. Or they should if they want to maximise their income. But being tax efficient can gift you with a double edged sword.
On one side you have an eye-catching, gleaming top line income. On the dull side, you show low salary and dividend drawings. This conundrum will confuse advisers at non-contractor friendly mortgage lenders like Santander.
They can see you earn good money…
…but their lending criteria can’t utilise the net profits in your limited company. Your low salary and dividends is all they can use, ending in a reduced mortgage offer (if one at all).
That “Ltd.” suffix on the end of your business name may add clout to your reputation. But it does little to enhance your mortgage affordability at Santander.
When all’s said and done, your blade’s blind side is likely to cut you. And deep, as it does with many High Street lenders.
Common questions about Santander mortgages
Due to its presence, contractors still ask us about Santander contractor mortgages. Especially if they’ve had a mortgage with them as a permie, but want to move on.
Here are a couple of FAQs we can clear up here and now:My current mortgage is with #Santander. Now I'm contracting, should I #remortgage with them? Hell, no! Click To Tweet
My current mortgage is with Santander. Now I’m contracting, can I still get a mortgage with them?
There are two possible scenarios here. They depend on how long you’ve been contracting, rather than to do with your current mortgage.
If you’ve not been contracting for two years, you’re going to struggle. You have little history, few accounts and a short term contract.
In Santander’s eyes, you are too high risk to get a mortgage. That’s even if you’ve paid every repayment on time.
But if you have been a contractor for more than two years, you stand a chance. They’ll ask to see those two years’ limited company accounts. They’ll then offer you a self-employed mortgage if they like what they see.
I have to reiterate, a mortgage using accounts may not get you the funds your income deserves. If you’ve kept salary and dividend drawings low? Their offer will reflect those low figures.What's a #contractor to do when their Santander fixed rate ends? #Remortgage with a different lender! Click To Tweet
What can I do when I need to remortgage after my initial Santander fixed rate ends?
The short answer is: don’t remortgage with Santander.
You have better options of securing a mortgage loan. Your contract income will help find more competitive ways to refinance a mortgage.
Your first port of call should be with a specialist contractor mortgage broker. But a word of warning: you’ll struggle to find such a broker on the High Street.
Specialist brokers deal with underwriters direct. They, in turn, work at a mortgage lender’s head office, not in-branch. But it’s this direct line to underwriters that you, as a contractor, need.
Underwriters don’t want to mess around trying to find your mortgage affordability. ISAs, savings, payslips or other means of evidencing income? They don’t want to see them.
Underwriters want to see your affordability immediately and appraise it with confidence.
A specialist broker will package your application so they don’t have to search for answers. It’s this extra step that makes all the difference.
Do we recommend Santander?
There are many contractor-friendly lenders out there. But contracting remains a specialist niche on the High Street, despite its rising popularity.
That’s why mortgage lenders treat contractors’ applications as High Risk via any other route.
Now, we’ve been trying to get Santander to adopt contract-based underwriting for years. So far, nothing. They won’t appraise contractors on their gross income or net profits, full stop.
Their sole response? Contractor mortgages are under review at Santander. If anything changes, you’ll be the first to know.
So do we recommend them? Not if we can help it!
Author: John Yerou
John Yerou is the owner and founder of Freelancer Financials; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for contractors and freelancers across the UK.
In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.
His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.