How do I find a contractor-friendly mortgage lender?

Before applying for a mortgage directly to a bank, we advise contractors speak first to a specialist broker. In particular, one who has an excellent track record in helping freelancers and contractors (like us).

I know. We'd forgive you for thinking:
"You would say, that, wouldn't you?"

But we say it for good reason. That's because we urge caution when approaching High Street banks for a mortgage as a contractor.

Based on over two decades of award-winning experience, we can confirm with certainty three things:

• untrained advisors in-branch and through call centres won't be able to see your real mortgage affordability;
• multiple failed applications and credit searches will leave a footprint on your history;
  • Hint: this is not good, especially if your credit score is already borderline;
• most High Street lenders do not 'get' contracting at branch or call centre level;
  • at best, they'll offer you a self-employed mortgage, which is not the same as a contractor mortgage.

Why do mortgage lenders favour PAYE employees?

Contractors who apply direct to a High Street lender are fashioning a rod for their own back. I'm not trying to be dramatic. It's the simple truth based on the bitter experiences of many of our clients.

For one, rejection will have a negative impact on your credit score.

Two, the same could also jeopardise your chance of owning the home you've set your heart on.

As a contractor, the deck is already stacked against you.

Why? Because most lenders build their affordability calculations around people in full-time, permanent employment.

A 'permie' can almost guarantee regular income. Even in times of ill health, most employers pay generous sick leave.

It's also improbable that permies will lose their job. The two possible exceptions would be retirement or redundancy. Even then, both of these terminations usually assure a lump sum to help protect the bank's investment.

In addition, a set amount of disposable income suits a mortgage lender's affordability equation to a tee. The culmination of all these factors adds up to low risk, allowing neat little boxes to be ticked, meaning fewer hidden surprises.

How global economic meltdown affected lenders' risk criteria

The effects of the credit crunch continue to impact our lives today. Yes, austerity measures brought in to steady the UK economy have become commonplace. Unbeknown to the majority, the UK's mortgage industry also went through a renaissance.

The electorate, the Government and even the EU demanded heads on platters. Banks were the culprit in the eyes of the masses, and thus became the public scapegoat.

The FSA (as was) was in the spotlight and, if it was being kicked from pillar to post, it wasn't going to take the whole rap. Enter, player one: the Mortgage Market Review.

The MMR looked to plug any holes responsible for the banking industry's flagship product sinking. It found these holes, one of the biggest to affect the self-employed being the 'self-cert' mortgage.

Butts that once sat at the captain's table ended up below deck plugging leaks. Not pleasant imagery, but true, nonetheless.

Responsible Lending: don't shoot the messenger

Enter player two. Sat at the captain's right hand to replace those vacated seats we now see Responsible Lending. These were a set of new guidelines guaranteed to shore up the mortgage ship. The legislature would ensure that only those who could afford mortgages on paper got them.

The problem is, many lenders have taken these Responsible Lending guidelines to the extreme. The degree to which some lenders are implementing them has even surprised the FCA.

As recently as the 21st May [2014], FCA mortgages and mutual sector manager Lynda Blackwell asked:

"We look at some of the questions being asked [by mortgage providers] and wonder why?"

She raised that concern at the Financial Services Expo in Manchester a little over a fortnight ago.

Yet the majority of High Street mortgage lenders are standing their ground. Their mantra remains "the lower the risk the better". To them (and you), this means anyone not in full-time employment or without years of accounts is too high risk to countenance.

How will applying direct jeopardise my chances?

The risk you run as a contractor is leaving many footprints on your credit file without securing a mortgage. We're not saying there are no contractor-friendly mortgage lenders on the High Street. There are.

But even then, advisers at branch level may not have the training to understand how contractors operate.

You are a specialist borrower; you need specialist mortgage advice

In addition, by applying through a branch direct, you're not dealing with an underwriter. The risk here is that the adviser won't present your application to the underwriter in a way that showcases what you can afford.

It's import to understand that your payment structure falls outside the norm. That means it will be a specialist underwriter who appraises your mortgage application. They'll be the one to approve it, or reject it if the information passed on to them is not presented 'just so'.

You've worked so hard to get where you are today. Don't jeopardise the mortgage your earnings deserve because the middleman doesn't 'get' the way you work.

It's natural to think that an adviser in branch knows best; we know from experience that's just not so. You have a current contract, one that your expertise has earned. Talk to an advisor familiar with contract-based underwriting before applying for a mortgage to make it count.