Why transparency about our mortgage lenders is a no-brainer
Last Updated: 07-12-2021
Reading Time: 11 minutes
The decision to be so transparent about our contractor mortgage lenders is somewhat unprecedented. When I first informed our brokers, you needed a chainsaw to cut the tension. Whilst I understood their reservations, neither they, we nor you need worry.
That's because we deal at a level beyond the advisers at call centres and in your local branch. It's not that we don't trust untrained advisors to reward you with the mortgage your earnings deserve…
…oh, hang on. No, that's a fib. It is that we don't trust them with your contract income. But that they don't recognise your potential is not always their fault. Nor yours. Nor ours.
Why specialist mortgage brokers exist - at all
Confused? Okay. There is and always will be a need for specialist mortgage brokers. Not everyone fits into neat little pigeon holes. Not everyone has a regular payslip or P60 to verify their earnings.
Freelancers, who flit between projects, typically have little 'evidence' to support their applications. Other than their past accounts, that is.
Contractors, who roll from 3-, 6- or 12-month contracts to the next, are only as 'safe' as their current contract. Or, maybe their impending contract extension if they're able to secure it in advance.
Should a lack of visible security mean permanent exclusion from buying a home?
If we believe the Chancellor, George Osborne, everyone is born equal [the irony]. The UK, under Tory control, would be awash with self-employed business owners. And they'd have immediate access to mortgages, just like employees.
Also, the success of the UK economy is dependent on the housing market prospering. So, again: everyone should have easy access to a mortgage to retain buoyancy.
Would there be capacity for both of those things if homeownership was the sole providence of permies?
Of course not. And neither do we see it that way. But you might think otherwise if you've worn the pavement of your local High Street in search of a mortgage as a contractor recently…
Where the High Street lenders lose the plot
Many of the lenders, or underwriters, with whom we deal have a different outlook than call centres and branches.
Contractors walking in off the street won't access our underwriters. They won't get the same deal as those who apply through a specialist broker.
Don't get me wrong: this imbalance was never planned. But niche sectors call for specialist knowledge. That's where we come in.
In our case, it's not only what we know, but also who we know. I'm not saying that to brag. It's plain fact.
We've helped lenders develop contractor policies. We've helped them see past SA302s and reams of accounts. We're about as specialist and relevant to contractors as you'll get.
Getting out of the starting blocks
Take this as an analogy, if you will:
Your local mechanic. He can fix your car, no problem. It's feasible that he could have a bash at Lewis Hamilton's F1 motor, too. He may even get it to work. The car may even make it around Silverstone.
But would Hamilton make the podium, even with the average mechanic's best efforts? Doubtful.
It's the same with contractor mortgages.
You could well get lucky and land an advisor who's aware of his employer's contractor policy. Or, they may offer you a mortgage that will do the job but, based on your accounts, not your contract.
But with so much at stake, amassing searches on your credit file that could ruin your hopes of owning your home, is it worth the risk?
Multiple searches - giving you the credit you deserve?
Before we move on, let me just explain a little bit about credit searches. Moreover, how subsequent rejections could deal a fatal blow to your aspirations of owning your own home.
It works like this.
Say you go to your local Clydesdale Bank branch after Google informs you that they do mortgages for contractors. You:
- take in a copy of your contract,
- provide the accounts they've asked for,
- wait a week to hear from them (no one likes giving bad news, especially advisors)
- are gutted when they tell you the underwriters have rejected your application.
Why? Where did it all go wrong?
The curse of a good contractor accountant
Because, as we all know, limited company contractor accounts do not show your worth in the most positive light.
So, you've burnt that bridge. You decide to try a different tack after talking to your peers.
You walk into Halifax based on a colleague's recommendation. Rather than ask for a contractor mortgage, you ask for a 'self-employed mortgage', instead. More lenient, right?
Perhaps, but you're still not going to get a mortgage. This time, it's thanks to the tax efficiency of your accountant. Before you know it, you're faced with yet another rejection.
Would you credit it, another rejection?
In a desperate last throw of the dice, you turn to Google again.
Great! That's just what you need.
But what do those lenders see after they execute another credit search against you?
The first thing they'll see is the two recent credit searches by Halifax and Clydesdale.
Their reaction? They won't even bother to follow through with your enquiry any further.
Why? They know that both of those mortgage lenders are contractor-friendly. If you didn't qualify for those, why should you qualify a few days later?
Your credit history simply doesn't heal that fast!
All the while, you could be sitting there with a bona fide contract that could have garnered you a mortgage. But, because the adviser:
- hasn't presented your contract in the right light;
- hasn't forwarded it to people who understand how to value it;
- has tried to get you a mortgage based on your accounts;
you've left many nasty footprints on your credit file. It's gonna take time to clean up that mess before you can try again.
Don't shoot the messenger
You may think we're scaremongering. That this sequence of events just would not happen in IRL. Well, let me tell you straight: I base this testimony on very real conversations our advisers have every single week.
But it's not only the front line staff in banks that get it wrong.
We even get calls from underwriters of contractor-friendly lenders asking for the accounts of a client whom we've referred. That takes another call from us to the bat-phone to get a senior underwriter to either take over the case or lend a hand to their understudy.
Ask for Fred. He knows where the right stuff's kept
Okay, one last analogy. This context should explain why we intervene, then you can proceed as you see fit. Contractor mortgages are not the main ingredient in a bank's income pie. Not by any stretch. You could even go as far as to say they're a rarity.
Imagine, if you will, a plumber's merchant. For year's they've been carrying a range of boilers.
Models come and go; some get revamped, others get discontinued. When the latter happens, this particular merchant wipes that model's records from their inventory. A common enough business practice.
But Fred, who's worked in the stores since outside WCs were en vogue, always keeps a stash of the boiler's spares. You know, "just in case"?!
Joe, the plumber, turns up on-site to fix a boiler. Lo and behold, it's one of these old, discontinued models.
He's bought parts for it before from our merchant so dispatches his tea-boy apprentice to pick up a replacement valve. Half an hour later, the apprentice returns, fiddling with his cap, but otherwise empty-handed.
After explaining to Joe that the merchant had no records of such a part, the plumber sends him back. Only this time, Joe tells him not to go to the trade counter, but to go see Fred.
An hour later, the apprentice returns with the exact part.
It had taken him longer this time around because Fred had related the boiler's history over a cup of coffee. But the good news? That's all it had cost the plumber.
Specialist brokers: Paracetamol for your Contractor Mortgage migraine
Again, this is similar to what happens even in High Street branches, even those claiming to be contractor-friendly. Advisers 'assume', based on both their training and how they interpret your situation. Contractor mortgages appear so seldomly, staff are unaware that the bank has a separate policy for them!
Even if they are up to speed, it's often easier for them to refer a client to a specialist mortgage broker. Or at least to someone who understands the documentation their senior underwriter can use! Either that or outright rejection.
So, there you have it. It's not your fault that most mortgage lenders cannot see the benefits or worth of your contract. In fairness, it's not always theirs, either.
But if we don't explain why you keep running head-on into a brick wall, who will? We're here to explain how you can prevent the headache of trying to get contractor mortgages direct.
I think it fair to say, that's our job done. If you want to know more, it'll cost you a coffee, but it'll be oh so worth it in the end...
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 June 23rd, 2014 12:21pm in