Why walking in off the High Street won’t get you a contractor mortgage

The problem we faced was convincing lenders that contractors were not only a much lower risk than freelancers, but due to their higher earning capacity, often lower risk than permies.

We eventually won them around; here’s one portion of food of thought we served them:

How does a hotshot permanent employee who’s headhunted every 6 months differ from a contractor who repeatedly works on 6-month contracts, regardless of their employer?

With respect to guaranteed earnings, said contractor will know what they’ll be earning for the next 6 months, or whatever the length of the contract. If they’re earning £500/day for 48 weeks, shouldn’t they be assessed similarly to direct employees?

Moreover, a direct employee will pay tax, National Insurance Contributions, etc., at their full PAYE rate. A contractor will be in a stronger financial position due to the tax-efficient way they draw their earnings. This fact alone makes contractors a potentially lower risk.

Our reasoning convinced underwriters that our approach worked. However, due to the intricate mechanics of a contractor’s earnings, most mortgage lenders won’t train front desk staff to deal with their applications.

To compound matters, by categorising themselves incorrectly, contractors are often ignorant of the strong position that their limited company director status puts them in when applying for a mortgage.

If both their own incorrect description of the way they trade is coupled with High Street rejection, it’s no wonder contractors struggle with mortgages.

Okay. Now you know what we mean by the term “contractor”, we can begin busting the myths that surround their mortgages…

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.


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