Why is it that so many contractors think first buyer mortgages are off limits to them? They’re not, of course. But do please forgive me for committing this old bugbear of mine to digital ink.
So, what ignited the conundrum this time? I saw the February 2015 Housing Report figures from NAEA and it was like, Ping! – a light bulb moment.
It’s not so much that contractors don’t need a first time buyer mortgage from the High Street. It’s just that by the time they decide to go it alone, they’ve already taken out their first mortgage as a permie.
This is more than a hunch, as confirmed by the latest self-employment report from the BoE. It confirms that an aging workforce correlates well with the record 15% self-employed figure.
But that statistic, I feel, is about to change. Perhaps that’s why the matter kept me up all night, eventually turning on the PC to craft the infographic, below.
BoE predicts self-employment will remain high long-term
The ever-increasing number of Britizens opting for self-employment will have a knock-on effect. And sooner, rather than later. Led by a generation of elders, running your own business will become preferable to working for the man.
When that happens, many younger UK contractors will face a mortgage adviser for the first time in their life. They need to know the score. Especially with schemes like Help-to-Buy paving the way for so many, who’ve only had the chance to save 5% deposit.
If permies can get on the property ladder with a 95% LTV mortgage, surely even those newest to contracting can, right? Well, yes and no.
The High Street is NOT the solution for contractors
It’s tempting to go to your local branch the first time you want a mortgage. They know you, you have history with them and they’re forever sending you mail shots to upgrade your bank account.
In the old days, that would have been the right way to go. Not so, now.
Since the credit crunch, High Street lenders are yet to offer a bespoke product for self-employed people of any type. That’s not to say they don’t cater for contractors. They do. But at senior underwriter level only.
That’s why I’m beseeching you today to go through a specialist mortgage broker for your first mortgage. The High Street will leave you with the impression that your contract counts for nothing. That’s so not the case.
They’ll ask you for accounts. If you don’t have them because you’re new, they won’t risk giving you a mortgage on your short term contract.
If you have limited accounts, 2- to 3- years, they’ll use your ‘take home’ to work out your affordability. If you’re doing your tax-planning right, their figure will be too low to secure you anything near worth what your contract could get.
The best way for contractors to get a first time buyer mortgage
First time buyer contractors need only a few documents to get a mortgage. That’s whether you’ve been contracting for decades or weeks.
It’s how a broker expresses your affordability, based on your contract, that will make the difference.
So, to get your application rolling, here’s what you need:
- a copy of your current contract;
- if this has less than 4 weeks remaining, you may need to secure an extension/new contract;
- three months’ bank statements, to prove you’re earning what your contract states;
- proof of ID, such as passport, driving license, utility bills, etc.;
- your CV, to prove time served in your industry if you’re expressly new to contracting.
And that’s it. You’ll need to speak to your broker so that they can get a clear understanding of your situation. The more they know, the better they’re able to package your application in its best light. Then they can take it from there.
The next thing you know, you’ll have the keys to your new home. You’ll wonder what all the fuss was about and why contractors never went that route before.
Here’s the Housing Market infographic that was the catalyst to today’s post. You see, 30% of all NAEA mortgage completions were first time buyer mortgages. I’d love to see that figure increase as contractors take advantage of the trend, too.
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.