No accounts! Contractors need contract-based risk assessments
One thing contractors learn about mortgages – the hard way – is the "self-employed" trap. It's easy to see why. Most lenders have two main default mortgage assessment criteria:
- the PAYE salaried employee model (full or part time);
- the self-employed model.
In truth, professional contractors are a mix of both and fit neither criteria. But that won't stop an in-branch advisor trying to make you fit one or the other.
The self-employed mortgage trap
When you approach a High Street lender for a mortgage be careful how you describe yourself. The minute you say you're a contractor, most will pigeonhole you as self-employed.
Saying that you're self-employed through your own limited company isn't much better. The eager adviser will ask for an accountant's certificate or 3 years' accounts. These should indicate your disposable income, hence affordability, but…
…for a limited company contractor, this is where your High Street mortgage aspirations die.
As a professional contractor, you're a specialist borrower
Most advisors at branch level don't understand your contractor status. As such, even if you take your accounts along, they'll only serve to confuse them.
On one hand, you'll have a copy of your contract showing your day rate. You'll also have your accounts after your accountant has worked their magic.
You and I know that accounts don't reflect your true income and affordability. But the poor advisor? They won't understand the vast difference between your day rate and your end of your accounts.
Yet still they'll try to fit your income into their traditional assessment.
And, yes: they're only trying to help. But they could do unseen damage to your credit history. That's because the only option left to them is to highlight your application as high risk.
They'll still forward it to a head office underwriter as a self-employed application. Maybe even 'as a favour' to you. But as they've not understood your income, head office will concur that you're high risk.
Get a mortgage based on your day rate, not accounts
You need a lender who can base a mortgage application on a multiple of your contract rate alone. More often than not, lenders don't have staff at branch level who can handle that.
Yes, technically, you're self employed. But you're an independent professional, too. You are the director of your own limited company.
You need a broker who understands professional contracting. Moreover, one who deals with contractor-friendly lenders and their underwriters direct. They appreciate that contractors' accounts bear no resemblance to their mortgage affordability.
How a specialist broker packages your application is different to the High Street. They show underwriters the information they need to make an informed decision. Using your top line day rate, they'll get you the mortgage your status deserves.
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.