Mortgage options for contractors with Leeds Building Society
Last Updated: 10-12-2021
Reading Time: 7 minutes
Leeds Building Society is the latest lender to add contract-based mortgage underwriting to its product range. The Building Society is rolling out this outstanding addition to its portfolio in phases.
That means there will be a pilot period. During the trial, the mortgages are only available through a select number of specialists.
I'm over the moon that Leeds BS has chosen Freelancer Financials for the wider rollout to market.
Martin Richardson explains how their policy addresses the lack of High Street contractor mortgages. The General Manager of Business development for Leeds Building Society said:
"We realised that, while the number of professional contractors is growing, they currently have very limited choice when it comes to securing a mortgage.
"We are keen to broaden this choice and have looked at the difficulties contractors encounter through traditional underwriting and how we might overcome these."
Leeds Building Society Lending Criteria:
Their policy is unlike that of some contractor-friendly lenders. Leeds Building Society is willing to accept only one year's contracting history.
Another major advantage is its policy doesn't discriminate between IT and non-IT professionals.
Leeds welcomes ALL professional contractors, irrespective of in which sector they work.
The lender's range also covers all bases, offering mortgages to contractors who are:
- first-time buyers;
- home movers;
What do we need to qualify?
Contractors must provide evidence of their ability and/or skills to re-contract within their industry. The historical period between contract(s) must not exceed 6 weeks in each instance.
To meet Leeds "contract-based underwriting" policy, borrowers must also:
- have notched up at least 12 months of contracting history;
- provide evidence of a contractor's ability to renew contracts/re-contract;
- provide 3-months personal and business bank statements;
- achieve a gross annual income greater than £50,000.
In return, Leeds:
- calculates earnings over 46 weeks (230 working days);
- calculate annualised income as Daily Rate × 5 (days) × 46 (weeks);
- don't like to see more than 6-weeks gaps between contracts (without good reason);
- ask for auditable evidence of the last 12-months contract, including a copy of CV;
- offer contract-based lending up to 85% LTV (15% deposit minimum).
Fixed-Rate Offset Mortgages
Leeds BS is offering several mortgage products to contractors. The range includes offset versions of their 2-, 3- and 5-year fixed-rate mortgages.
This type of product will suit contractors*, who often save up to cover times they're not working. It includes the following offset mortgage deals:
- 2 year 3.19% fixed rate, up to a maximum LTV of 85%;
- 5 year 3.89% fixed rate, up to a maximum LTV of 75%;
- 3 year 3.49% fixed rate, up to a maximum LTV of 80%.
*What is an Offset mortgage (and why are they a good fit for contractors)?
An offset mortgage optimises the cash assets you already have. It's a way to use the capital in your savings and current accounts to reduce the interest you pay on your mortgage.
Offset mortgages offer great flexibility. They allow homeowners to save interest they'd otherwise pay on their mortgage. This has a compound effect. You can use those savings to either pay off your mortgage earlier or reduce your monthly payments.
Which option you choose will depend upon your circumstances. If you need to reduce your monthly outgoings, put the savings towards the repayments.
If you want to reduce the term, just continue repaying the normal monthly amount. The savings you accrue will help you pay off the mortgage earlier.
Offset mortgages can pay dividends for contractors
Contractors can benefit more than many other workers from offset mortgages. It gives them another choice.
Many limited company contractors hang on to retained profits, drawing low salary and dividends. But the Chancellor is on a great crusade against PSCs.
By leaving the savings in your accounts, they're "offset" against your outstanding mortgage balance. Hence the term ‘offset' mortgage, now available to all contractors through Leeds Building Society.
Depending on how you draw your salary will impact which financial option works best for you. Your accountant can help you make the right decision.
Even so, your savings earn little interest in the current economic climate. Why not put them to work for you instead of them being another tax burden?
Update, April 2016
Leeds Building Society has relaxed its policy on interest-only mortgages. This is awesome news for contractors who build up a cash pot over the year.
The recent announcement goes into more depth about Leeds' range of interest-only mortgages. They include 2-year and 5-year fixed rate and a 2-year discounted rate. The least deposit to qualify is 25%, working up to a 50% LTV option.
The article explains their interest-only offering from a standard mortgage perspective. Remember, Leeds' mortgages for contractors are only available through select mortgage brokers.
The building society is also offering a 2-year fixed interest-only part & part mortgage. That's where you have part of the mortgage as capital and interest (repayment). For the other part, you only pay the interest on the loan.
As with all interest-only loans, you must have a credible repayment vehicle in place. These are not like the self-cert mortgages of the past, where obtaining a mortgage was a cinch.
Both Leeds' offset and interest-only mortgages offer contractors ways to leverage their savings. With compliant options lessening, they're an opportunity to make your savings work for you. Why not take it?
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 October 29th, 2014 11:15am in