Mortgages for Contractors Made Easy
Before the banking bubble burst, self-cert mortgages were the only easy way contractors could buy a home. At least that was the market perception using traditional lending routes.
They were so easy to process, lenders did little to convince independent tradespeople otherwise. In the end, lenders made it too easy to access this type of home loan.All manner of people, even those in full time employment, were providing false evidence about their income. And all in an attempt to buy homes that came with mortgages way beyond their means.
It all seems unthinkable and even a little bit mad, in hindsight.
But you’ve perhaps heard the term “liar loans”? Because of the wanton abuse, that’s what the self-cert became known as, so discrediting it as a viable option.
Can you still get self-cert mortgages?
The FSA all but killed the self-cert and, when the dust settled, lenders heeded the cry for Responsible Lending. The self-cert mortgage was amongst the first of many financial casualties in the ensuing cull.
In the aftermath, contractors found the High Street a desolate place. Institutions willing to lend based on their contract earnings were few and far between.
Take home pay and accounts? No problem.
But we all know how what a contractor's accounts look like after their accountant's been through them. Yep, it's as if they've never heard of minimum wage, if their take home pay is anything to go by.
Thus, finding finance to fund buying -their dream- any home became an arduous task for contractors.
Does this mean contractors can no longer get mortgages?
Given the picture we've painted thus far, you may think we mourn the disappearance of “liar loans” from the High Street.
Far from it. We think it’s the best thing to happen to the contractor mortgage market in years.
Since the turn of the century, the market's had mortgage solutions for contractors.
The plain fact is, ignorant IFAs hoodwinked contractors into thinking that self-cert was the only way. Not so.
Aren’t contractors supposed to earn more than permies?
There's a unique irony that runs through this sorry saga.
Contractors are far better placed than most permies to show lenders the responsibility called for by the FSA. And its successor, the FSA.
Moreover, if more lenders would only recognise a contractor's affordability, their culpability would dissolve.
Yet contractors remain the victim of unfair bias on the High Street, shown by almost every well-known lender.
So what’s going on? More to the point, what can we do about it?
High Street lenders? Rabbits in the headlights
The High Street remains the same desolate place it was five years ago. What is changing is the UK’s growing population of independent professionals.
There are almost a quarter of a million more contractors working in the UK today than there were a decade ago.
You’d have thought that lenders would have cottoned onto that fact, by now.
Indeed, the bubble that caused the collapse in banking regenerated the self employed market. Yet the High Street hasn't yet put this two and two together.
And another thing. It's been some time, now, since the self-cert got its marching orders. You'd have thought that mainstream lenders would have developed a product to replace it by now.
It's not so. There's been no realignment of product portfolio to embrace the surge of British entrepreneurship.
If you're a contractor, I guarantee that nine out of ten High Street banks will push you down the . That's great if you withdraw most of your earnings and have been trading for several years. self-employed route
But what about those new to contracting? What about those who do pay accountants to make the most of the UK tax breaks availed of limited business structures?
Have lenders attempted to reach out to this sector, set adrift without the fallback position of self-certs? Barring an exceptional few, the answer is categorically “No!”.
The High Street is little more than a waste of good shoe leather for the majority of this country’s contractors.
How do High Street lenders view those new to contracting?
If you’re new to contracting, struggling to get a mortgage is not something you’d have envisaged when setting up shop. On the contrary.
You thought that because of your newfound income retention, banks would be bending over backwards for you.
But again, not so. And who can blame you for those assumptions? Doesn't earning and retaining more make you a better financial prospect in a lender’s eyes?
Let me assure you now, this ridiculous predicament is not your fault.
How contractor mortgages simplified the application process
In truth, the self-cert was a poor proposition to contractors, period. Even before global financial collapse.
The problem was (and still is, to an extent), contractors trusted the High Street. When advisers told them that self certification was the only way they could own their own home, they believed it. Moreover, they were grateful!
But were so many thousands of contractors so gullible? Of course not. Let's look at the real reason so many contractors got lumbered. And, in a way, why they fail to get a decent mortgage on the High Street today.
On paper, the way limited company directors draw their income means that they cannot “afford” a big mortgage.
Low salary and dividends: great for tax-planning. Useless if you want to borrow the amount needed to secure a home that befits your status.
And that's for contractors who have accounts. Yet we both know that to be far from the truth.
That's at least the way it looks in the eyes of inexperienced IFAs. And, no. You won't find many senior underwriters in branch on a warm Saturday afternoon in August. ;)
And what about contractors without accounts? Well, they didn’t even get a look-in.
Yet they could have secured a competitive mortgage on the back of their contract alone. But only IF they'd used a specialist broker who understands what underwriters look for in a contract.
Better contractor mortgages, less hassle
Tired of seeing our clients despondent, we sat down with the decision-makers. No offense, but the desk-jockeys don’t "get" contracting, even with three hours and diagrams to explain it.
No, we approached the underwriters. Not on a weekend, of course.
In short, we negotiated deals that got rid of the smokescreens surrounding contractors’ earnings. Instead, we focused on the element that matters most: the value of your contract.
Many of these underwriters represented High Street names that may have refused you already. Please don’t let that put you off at this stage.
Today, the easiest way to get a contractor mortgage is through a specialist mortgage broker. This is important.
We use a stealthy approach, based on the deals struck in lenders' ivory towers. A specialist broker can package your application 'just so' and make sure the right people get to process it.
So how can I get my hands on a mortgage like this?
Well, that’s the easy part. By contacting a mortgage specialist your application will find its way into the hands of an underwriter.
Why? Because we fully understand what’s required. Again, this is not to the detriment of in-branch staff. We know due to our initial involvement in shaping this entire application process.
Now, between the underwriter and broker exists mutual respect based on this long-standing relationship.
We pass on those benefits to our clients when applying on their behalf. In return, the banks get an application they can do something with. That alone is priceless from a contractor's point of view.
Great! What do you need from me to apply for my mortgage?
As a general rule of thumb, all a lender will need to process your application:
- a signed copy of your current contract;
- an official form of identity;
- your last three months’ bank statements.
If you’ve had enough of blank faces, outright refusal and dejection, it’s time to change your approach.
Request a call back, drop us an e-mail or speak to someone right now about your circumstances. Even if it’s just to share your woes, our friendly, experienced advisors can help.
There’s no obligation. There's nothing you can lose. And even just going through the process could get you an agreement in principle within hours rather than days.
Owning your dream home could be a reality sooner than you think. Our thousands of clients can vouch for that.
We’ve done all the hard work already. Why not put us to the test today? See exactly how contractor mortgages have made buying a home easy for you.
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.