Contractor Mortgages – Who are the best lenders?
Don’t fall for the unscrupulous mortgage websites claiming to provide “Contractor Mortgages”. They can be disastrous if you’re thinking of obtaining a mortgage based on your contract rate.
Type “Contractor Mortgages” into Google. The result? You see plenty of websites promoting mortgages for contractors, right?
Well, not quite. In this case, seeing is not believing. Many such sites promise to secure you a competitive mortgage through a “Contractor-Friendly” lender.
In truth, the website owner wouldn’t know such a lender if they were next door to one. In many instances, they’re not even authorised by the FCA to give you that advice.
Most of these sites are lead generation sites, also known as affiliate sites, pure and simple. This means they get paid a commission for referring contractors to others’ websites.
Their links may take you to a bona fide lender direct. Yet that lender may only offer you a self-employed or standard mortgage. Or they could send you to a specialist mortgage broker whom the FCA has authorised.
Yet the website owner themselves knows little about contractor mortgages, this I guarantee.
What they do know is how to get a website ranking for key search terms and nothing more. If you’re looking for advice, as most contractors are, they’re of no use whatsoever.
Why should that matter? I only want a mortgage
The problem is that the majority of rates advertised are not from “contractor-friendly” lenders. In fact, these rates may never have existed!
More important for you, dear contractor: some lenders advertised don’t even deal with contractors!
The problems don’t end there. Your credit score is of vital importance to most mortgage underwriters. When it comes to your credit history, if your file shows many recent searches, it has an impact. But not a positive one.
The more failed searches on your file, the less likely you are to get credit. From anywhere, for any type of credit, from an overdraft to a mortgage loan!
Demand transparency from your contractor mortgage broker
There are other reasons why dealing direct with High Street lenders can be problematic. If you get rejected it becomes harder for specialist brokers to get you a mortgage.
The chances are that a lender will turn you down if your broker doesn’t know how to package your application. Most brokers are unaware of contract-based underwriting – using your contract to get a mortgage – don’t.
I’ve written an article to accompany these guides explaining our transparency about contractor-friendly lenders. We hope it will help clients realise that we’ve nothing to hide or fear about revealing our partners. It is, as the title alludes, a no-brainer.
Let’s be clear: these websites are equivalent to a scam, so be careful. It’s a legitimate trick to get you to complete their enquiry forms to earn them a commission.
One point of this article is to help you recognise these duff sites. To that end, here’s a list of lenders I’ve seen advertised who won’t be able to help you as a contractor.
Let me quantify that. These lenders can’t get you a mortgage based on your contract*, the best way for contractors to do so:
* We do work with some of these lenders for ‘self-employed mortgages’. They are not the same as contractor mortgages, as we’ll go on to explain further here.
A full list of banks, building societies and mutual’s with whom we work is at the end of this guide.
Why so important to get a mortgage based on my contract rate?
The above lenders will demand to see at least two years accounts. They’ll then use those accounts to work out how much you can afford to borrow.
They’ll base that figure on a multiple of your salary and dividend drawings. Now do you begin to see where it’s all going wrong?
As a tax-savvy contractor, you keep your salary and drawings low on purpose. Using these figures is not the way to get a mortgage that optimises your contract earnings!
Here’s what to do. Work only with genuine brokers who specialise in contractor mortgages.
We, Freelancer Financials, are such specialists. We secure mortgages for contractors based on their contract rate alone.
How do we do that?
We only use contractor-friendly mortgage lenders. The main reason is to avoid the High Street branch network. But that doesn’t mean they offer a reduced range of mortgages. Far from it.
Interest rates are at least as competitive as any High Street mortgage. That means your monthly payments will be no different to your permanent peers.
Deposits are no greater or less, starting with 5% (95% LTV) offers. Of course, the more you put down, the lower your monthly repayment. That’s the same with any mortgage.
You can choose between a tracker or variable rate mortgage and a fixed-rate mortgage. And there are even lenders returning to interest only mortgages.
For a long time, capital and interest (repayment) mortgages have ruled the roost. But lenders are looking at all options to help support the UK housing market.
As a contractor, you’re not restricted in any way if you go through the right channels.
The Freelancer Financials’ Difference
We package your mortgage application so that it makes the most of your contract. Our expertise appeals to underwriters, with whom we’ve negotiated bespoke terms and deal direct.
This extra protective layer minimises the risk of an underwriter rejecting your application. Even on a standard mortgage, a rejected application has ramifications. But for contractors, it’s worse.
Most High Street banks often reject applications from contractors. Their staff are not trained to deal with them.
Advisors will ask you to prove your income, often asking for two to three years of accounts. If you can’t, most will decline you without even looking at your contract.
Protect your credit score, secure your mortgage
Getting past Go! on your first attempt is so important. For one, it saves your precious time. But a successful search also protects your credit score.
Too many tell-tale footprints from unsuccessful searches leaves you with a bad credit rating. Bad credit may not stop you securing a mortgage. But it will impact your interest rate and mortgage payments.
We, as an approved FCA independent broker, have been providing mortgages for contractors for years. So many eventual clients have shared their tales of woe about these unscrupulous sites.
We want to stop this practise once and for all. To help, here’s the second and main point of the article. We’ve produced a guide, below, of all the known contractor-friendly lenders.
Each institution listed has one thing in common. They’re willing to assess your borrowing capacity on a multiple of your contract rate. As a limited company contractor, that’s so much more advantageous than using your accounts.
We hope you find it helpful and would love you to share your feedback in the comments, below.
The Halifax was the first ‘Contractor-Friendly’ lender. Today, it continues to lead the way in bringing affordable mortgages to independent professionals.
In May 2013, the bank took the huge step of offering mortgages to non-IT contractors. The policy change fortified the bank’s reputation as the go-to lender for contractors.
We’ve outlined the full scope of its lending criteria. This will help you recognise what Halifax expects of its customers. It also offers insight into the relationship it continues to build with our community. [Read More…]
Clydesdale Bank sets itself aside as a mortgage lender that understands contractors. They understand how contracts work. They also get that limited company accounts don’t always show the big picture.
Working alongside its expert underwriting team, we’ve forged strong relationships with Clydesdale. They’re not afraid to offer innovative products. They’re flexible enough to update lending criteria to suit the market, when needed. In all, Clydesdale’s a great brand to work with.
We detail their full criteria for those eager to work with a responsive lender. Even if your situation isn’t an exact match to their lending policy, they are prepared to listen. Leverage our relationship to get their full attention. [Read More…]
Nationwide Building Society
Not all contractors work in IT or Oil & Gas. They don’t all earn in excess of £300/day.
Nationwide Building Society acknowledges these factors and much more. They don’t punish modest income, a few weeks off a year or working in a non-preferred industry.
They do ask that you’ve been contracting for 12 months in the same industry. So if you have, but don’t meet other lenders’ strict criteria, Nationwide offers a solid, viable alternative. [Read More…]
NatWest bank has set the level of entry for its contractor mortgages high. £326/day is the least income they’ll accept from limited company applicants.
That said, the high earning level is in line with other “Big Four” lenders who do the same. They, more than any, are wary of Responsible Lending guidelines upheld by the FCA.
But do you feel more comfortable with one of the UK’s biggest lenders? If so, NatWest’s full limited company contractor mortgage lending criteria could be perfect for you. [Read more…]
Accord Mortgages pander to the highest-earning contractors. The least one can earn to qualify is £400 per day or £75,000 per annum.
To counteract these terms, Accord offer some of the most competitive contractor mortgage rates today.
The lender, part of The Yorkshire BS Group, also has one of the highest multipliers. For mortgages < £500k, Accord offer up to 5.49 × [your annualized contract rate x 0.8]. [Read More…]
Leeds Building Society
Leeds Building Society only launched its contractor mortgage range in 2015. Since the success of the pilot scheme, it’s not let the grass grow under its feet.
The Society has no restrictions on which sector contractors must work in to qualify. The low earning threshold also makes mortgages accessible to the majority.
Few lenders offer as wide a range of contractor mortgages as Leeds. Interest-only, buy-to-let, repayment (fixed and variable rate) and offset mortgages are just the highlights. [Read More…]
Why add Scottish Widows when Halifax and BM Solutions already offer contractor mortgages? Well, Lloyds has seen the opportunity to extends its offering without upsetting the applecart.
With Scottish Widows contractor mortgages you get the same market-leading products that Halifax offers. But you also have options of interest only and offset mortgages.
If you want to make your cash work for you, offset mortgages are a tempting alternative. Our criteria proffers an example of repayment v offset to help you make up your mind. [Read More…]
After the credit crunch, the government demanded a new challenger bank. From the ashes of economic instability, a phoenix rose in the shape of Metro Bank.
What we didn’t expect, at least this soon, was that the new bank would open its doors to contractors. In reality, Metro Bank has done more than that.
No minimum income, no preferred industry and only 12 months’ prerequisite contracting? Now they’re criteria we can all work with. [Read More…]
Virgin Money: a real case of “Guys, what’s going on?” In the past, using our relationship with Virgin’s underwriters, we could get ‘exceptions’.
What’s one of those? It’s where an applicant’s circumstances aren’t a direct match for Virgin’s lending criteria. Yet, we believe they are low enough risk for a mortgage.
In the past, we would present our case and Virgin’s underwriters would appraise it on its own merit. If they agreed with us, back of the net, mortgage sorted.
But those days are gone and the bank’s attitude toward contractors has changed. Our article has more in depth about that.
There is an exception, though. Are you a contractor who’s changed from an Umbrella to Limited Company in the last two years? Then Virgin’s contractor mortgages could be right for you. [Read More…]
Kensington is one of the new kids on the contractor mortgage block. That’s not to say they’re just a copycat of other lenders. Far from it. They’re pushing boundaries to some extent unprecedented in our sector.
They combine Clydesdale’s flexibility with Halifax’s outlook. One year’s accounts are suffice for their underwriters to determine your mortgage affordability.
Kensington has also lowered the two above lenders’ insistence on a minimum earning threshold. They are even willing to consider applicants with a less-than-perfect credit history.
If all roads have led to nowhere, the Kensington may just be your destination. [Read More…]
Saffron Building Society
Saffron Building Society is a flexible mortgage lender that welcomes all contractors. In fact, they offer mortgages to self-employed people of most trading structures.
The terms covering length of time served as a contractor/contracting history are stringent. Their interest rates can be higher than other contractor-friendly lenders, too.
Irrespective of earnings or industry, Saffron’s underwriters will assess your application on its merit. If your industry or day rate are unfavourable elsewhere, Saffron may just be the answer. [Read More…]
The Furness and Newbury Building Societies
Both Furness and Newbury rank amongst the smaller of the contractor-friendly mortgage lenders. What they lack in size, they make up for in the personal touch.
Both assess applications on a case-by-case basis. They also offer mortgages to contractors who don’t work in the typical ‘safe’ industries. And they’ve removed the lower earning threshold imposed by many of the larger lenders.
Given their manual appraisal of each application and their size, they’re not the quickest. But if having the personal touch is your bag, talk to us about Furness or Newbury. [Read More…]
Other contractor friendly and self employed mortgage lenders
Since we first produced this guide, we have built bridges with many other lenders. Details of the lending criteria for each are filtering through. Once we have the full information for you, we’ll create a bespoke guide for each, as we have done above.
In the meantime, please find the other lenders with whom we deal. Some offer contract-based underwriting, using your day rate to secure a mortgage. Others offer self-employed mortgages, using accounts; here’s the list:
- Accord Mortgages;
- Birmingham Midshires;
- BM Solutions;
- Coventry Building Society;
- Godiva Mortgages;
- Kensington Mortgages;
- Kent Reliance;
- Leeds Building Society;
- Metro Bank;
- Nationwide Building Society;
- NatWest Bank;
- Scottish Widows Bank;
- Skipton Building Society;
- The Mortgage Works (TMW);
- Woolwich (Barclays).
If one of these is your preferred source, do give us a call and we can discuss terms on a personal basis for you.
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.