Even with payslips, High Street mortgages elude umbrella contractors

You're an experienced contractor working in the public sector. Over time, you've become smart. You predicted the issues with automatic payroll. So on balance, you opted to work through an umbrella company.

You're not alone. Nine in every ten public sector contractors now use umbrella company payment structures.

And now that you've got payslips, you think:
“Yes! Getting a mortgage now will be a doddle! Right? Anything's gotta be easier than that last fiasco, using your limited company accounts.” Right?

No, not necessarily.

It doesn't matter if you contract in the public or the private sector. Nor if you use a limited company or umbrella company as your payment structure. Nor, sometimes, even how long you've been an independent contractor.

What matters is that you get to an underwriter who understands your payment structure.

That's the critical bit! And the best way to ensure your underwriter will get your income is to use a specialist broker who can interpret your payslips for them.

They must understand why you use an umbrella company. They must interpret it as just another tool in your business armoury. Your payment vehicle is a means to an end, no more than that.

What the underwriter wants to know

What should matter to an underwriter is your gross contract rate, not post-tax accounts. They'll also value your industry experience, not how long you've been a contractor in it. And, of course, your affordability, disposable income and credit history.

If you can tick those boxes, you're on the right path.

Oh, yeah. Another thing.

That underwriter. The one who'll assess your mortgage application. They won't be in your local branch on a Saturday morning.

For one, they'll always be at head office. For two, definitely not at the weekend.

They also often only deal with intermediaries who've vetted a contractor first. An 'intermediary' is a broker or IFA. But they've got to be contractor-savvy, otherwise all your groundwork will blow up in your face. Ouch!

You need to realise that, as an umbrella contractor, you're a non-standard applicant. In-branch advisors and call centre agents are unlikely — or unable — to assess your mortgage affordability correctly.

The complex nature of umbrella company income

Think about it for a second. Who is your employer? You, as the limited company owner, the umbrella company who pays you or the end client? Or even the agency if that's how you source contracts, as many public sector contractors do?

How will that look to a mortgage advisor who's only used to handling PAYE employees?

If that's not complex enough, look at your payslip. It's not like that of the aforementioned normal, full-time PAYE applicant.

How does what you earn equate to that ‘pick up' salary figure?

Where's the amount that reflects your invoice?

What are all those deductions? And two lots of NICs?

Your umbrella payslip won't cut it, so you try to explain your income with your bank statement(s). But that's even more ambiguous: different creditors, amounts that don't tally. So what's happened to that generous top-line day rate?

Can you see now why untrained advisors struggle with umbrella payslips? Even your accounts trail won't make sense to them. Maybe not even to you, either.

Don't blow a glorious opportunity by panicking

When you begin contracting as an independent, your life changes. You earn more, keep more of what you earn and gain, well: independence.

If you earn above a certain amount — around £40k at time of writing — a limited company makes sense. There's no better way to keep hold of your income.

But hiring an accountant can get messy if they don't specialise in contracting. IR35 isn't going away anytime soon. And, yes: the threat of automatic payroll is real enough.

An umbrella company can circumvent much of that hassle. That's why 90% of public sector contractors use them as their payment vehicle.

Reduce the risk, increase your chances

Once upon a time, contractor mortgage lenders dithered about umbrella contractors. Part employee, part contractor, dodgy payslips — all a bit of a risk. And that can still hold true if you choose the wrong agency or become complacent.

Remember, underwriters assess umbrella contractor mortgage applications manually. You've still got to do all you can to reduce risk. Turn up on time at your client. Get concurrent contracts. Look after your credit rating.

If you do that, you're putting yourself in a great position. But don't rush into a mortgage by charging to your local branch with your payslips.

A mortgage underwriter would much prefer a specialist broker to vet you first. Once vetted, said broker can then package your application just so.

Don't get suckered into the three-years' accounts and your dog's birth certificate trap

It's pointless sending a ream of documents that get in the way. Underwriters' time is precious, not to mention pricey. A specialist broker will know that and what they do want to see.

In fact, that's exactly it: less is more.

Less:

• paperwork (and time/hassle) for you;
• unnecessary gumph to irritate your underwriter before they start;
• time to process the application, thus get you the keys to your new home earlier.

More:

• patience and diligence in choosing who to approach;
• chance of you succeeding with your application first time;
• chance of optimising your umbrella income to get the competitive mortgage you deserve.

It couldn't be more simplerer.