Contractor Mortgages – Who are the best lenders?
Don’t fall for unscrupulous mortgage websites that claim to provide "Contractor Mortgages"! Most site owners wouldn’t know genuine contractor mortgage lenders from a squirrel. Worse, they can derail all your hopes of securing a mortgage based on your contract rate.
Type "Contractor Mortgages" into Google search. The result? You’ll see plenty of websites promoting “mortgages for contractors”. But are they really the accredited broker or an affiliate thereof?
Genuine broker or just a bluffer?
Seeing is not always believing. Most sites that promise to get you a competitive mortgage through a "Contractor-Friendly" lender are referrers.
In truth, the website owner doesn’t understand how lenders assess contract earnings. They’re not always even authorised by the FCA to give you that advice.
Most of these sites are nothing more than affiliate or lead generation sites. They get a commission for referring contractors like you to others’ websites.
Their links may take you to a bona fide mortgage provider’s website. But who’s guaranteeing that lender?
Chances are, non-specialist advisors may default to their self-employed mortgage. That type of underwriting relies on SA302s, salary and dividends. Any retained profit will be forfeit.
As a professional contractor, that type of mortgage underwriting won’t reflect what you can afford to borrow!
It’s specialist underwriters who call the shots, even at recognised contractor mortgage lenders. If you haven’t got a direct line to them through a proper broker, you’re heading for a fall.
You might eventually arrive at a specialist mortgage broker whom the FCA has authorised. But again, the referrer will get a kickback, just for adding unnecessary steps to your journey.
Ranking versus banking: why you should care
What these affiliates do know is how to get a website ranking for key search terms. But that’s about it.
If you’re looking for advice, as most contractors are when they’re buying a home, forget it. You’re barking up the wrong tree with these guys.
One problem is that the majority of rates advertised are not from "contractor-friendly" lenders. In fact, these rates may never even have existed, at least, not for independent professionals!
More important for you: many lenders whom affiliates advertise don’t even deal with contractors direct!
Why trying to use your salary may have a negative, lasting impact
The plain fact is, they’ll use your salary to work out affordability. And maybe the dividends you’ve drawn, if their calculation permits. Using those tax-efficient figures, you’re unlikely to get any mortgage, let alone a competitive one.
And your problems won’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! And it may take years to rid your file of failed applications.
Demand transparency from your contractor mortgage broker
There are other reasons why dealing direct with High Street lenders can be problematic. If they reject you, it then becomes harder for specialist brokers who could have helped to get you a mortgage.
Lenders will turn you down if your broker doesn’t know how to package your application. Most brokers remain unaware of contract-based underwriting, which uses your gross contract rate to get a mortgage.
An article accompanying this guide explains our transparency about the contractor mortgage lenders we use. We hope it will help clients realise we’ve nothing to hide or fear about revealing our partners.
Let’s be clear: these other 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.
This article should help you recognise sites that are not all they claim to be. Here’s a list of lenders I’ve seen advertised who won’t be able to help you as a contractor. The optimal way for contractors to buy a home is using their contract rate. These lenders don’t have that flexibility:
*We do work with some of these lenders for ‘self-employed mortgages‘. Don’t confuse a self-employed mortgage with a contractor mortgage. They’re not the same; we’ll explain further as we go.
A full list of banks, building societies and mutuals offering contract-based underwriting 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. Only partner 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.
Why we only use vetted contractor friendly mortgage lenders
The main reason we use contractor-friendly lenders is to avoid the High Street branch network. But that doesn’t mean we don’t use mainstream lenders. Nor does it mean we offer a reduced range of mortgages by sticking to our guns. Far from it.
Interest rates we can secure you are at least as competitive as any High Street mortgage. That means your monthly payments will be no different to your PAYE 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 for any type of borrower.
You can choose between a tracker or variable rate mortgage and a fixed-rate mortgage. There are even lenders returning to interest only mortgages, but the deposits are high. Offset mortgages are also having a renaissance.
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 advantage of using a contractor-specialist broker (like us!)
We know how to package your mortgage application so that it optimises your contract income. Our expertise appeals to underwriters, with whom we’ve both 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 far worse.
Most High Street banks often reject applications from contractors without a second thought. Their staff are simply not trained to deal with limited company accounts like yours.
Advisors will ask you to prove your income, often asking for 2- to 3-years’ accounts. If you can’t provide them, most will decline you without even looking at your contract.
Even if they did look at your contract, they’d want to know why your salary was so low compared to your day rate. This huge difference would immediately start their alarm bells ringing.
Protect your credit score, secure your mortgage
Getting past Go! on your first attempt is so important. For one, it wastes none of your precious time. But a successful search also helps to protect your credit score.
Too many tell-tale footprints from unsuccessful searches leave you with a bad credit rating. Adverse credit need not stop you getting a mortgage. (It also might, with certain lenders!). But a poor credit score will impact your interest rate and mortgage payments.
As an approved FCA independent broker, we 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 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.