Metro Bank Contractor Mortgage Lending Criteria
Update, December 21st, 2020:
Metro Bank has updated its lending criteria post-December 2020 lockdown. The bank is offering 10% deposit borrowing, but with caveats. Details (from our own 10% deposit mortgage update), below:
Key points of Metro Banks new lending criteria for contractors
The lender is making great strides to accommodate both contractors and high LTV mortgages, offering:
90% LTV for both first time buyers and homemovers, [but on] 5-year fixed only.
Relaxed affordability criteria for contractors
A great development has seen Metro Bank relax its contractor affordability criteria. Now, the lender has removed the restriction of insisting contractors have 12-months' experience working in a fixed-term role.
Instead, contractor applicants can evidence 24 months' continuous employment in the same industry. This will help contractors who've made the jump from permie to independent professional in the last two years.
Neither does the bank apply the barrier of minimum contract value, nor profession/industry. And they'll allow a generous 6-week gap between contracts during the past year!
We're not surprised that you maybe experiencing barriers on the High Street, or with your existing brokers. With these updates, Metro Bank has become a viable option for contractor mortgage borrowing.
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Metro Bank might be new to the High Street, but green it’s not. The new lender has some of the savviest UK financiers on board. Between them, they’re showing intent after just six years after the bank’s incorporation.
Metro hasn’t wasted time evaluating the strength that lies in the UK's self-employed backbone. It’s seen the huge potential and launched its own range of contractor mortgages.The range is all-encompassing, considering less than perfect credit and more modest incomes. The industry in which a contractor works is likewise not an issue. Neither is their payment structure, be it limited company or PAYE umbrella.
Seem too good to be true? Absolutely not.
Who or what is Metro Bank? Are they secure as a mortgage lender?
Following the economic collapse of 2007/8, the FSA (as was) wanted action. The ‘Big Four’ were its target, especially as Lloyds Banking Group threatened monopoly status.
The FSA instructed Lloyds to sell the retail arm of the group, which saw TSB set sail on its own again. It was a long, drawn out process. And even then, the regulator wanted more choice on the High Street.
They got what they wanted in the shape of Metro Bank. Over time, Vernon Hill collated some of the finest financial brains in the UK and launched the new bank in 2010. It was the first challenger retail bank to open on the High Street in over 150 years.
Metro Bank seems determined to challenge on all fronts. Their most recent move sees them accepting short term contracts as evidence of income. It means independent professionals have yet more choice and how?!
Flexible lending criteria the key to Metro’s appeal
When the High Street first launched contractor mortgages, applicants had to jump through hoops. And that was just to get a one-to-one with an advisor.
Brexit aside, signs of economic recovery have tantalised the money markets. As such, growth is once more a consideration for banks and building societies. It’s this prospect that has seen lending criteria become less stringent.
Many of the newer contractor-friendly mortgage lenders have adopted an (en)lightened view of contracting. Metro Bank is no different to any bank or building society of that ilk.
The service industry is growing. The opportunity for individuals to provide those services is greater than ever. With its new range of mortgages, the challenger bank is supporting that growth in all corners.
What does (and doesn’t) a contractor need for a Metro mortgage
It’s not just Metro lending criteria that are different. It’s the accompanying underwriting process that makes the bank so versatile. No rigid computer systems here. Metro Bank assesses borrowers’ affordability using bespoke underwriting methods.
As such, underwriters don’t use accounts to work out how much a contractor can borrow. They use limited company pre-tax net profits or contract rates as the base of the calculation.
Applicants don’t have to worry that they work in a non-preferred industry. Nor should they concern themselves about reaching a minimum income threshold. Other contractor-friendly lenders demand £75,000 per annum or a day rate > £300. Not Metro.
The bank sets no stall by industry or a minimum contract day rate. All limited company or umbrella contractors are welcome to apply for Metro’s mortgages.
Another barrier that the bank has done away with is length of time left to run on a contract. But what we would suggest is that if you have less than four weeks remaining, either:
- try to get an extension or renewal first;
- failing that, talk to us; we deal direct with the underwriters and can put your case forward for you.
What the bank does stipulate is that the contractor has 12 months’ contracting experience. If an applicant has a solid reason for less time served, the bank may still consider them.
Don’t forget: the underwriting process is manual. Working in such a way gives underwriters chance to judge each borrower on an individual basis.
They’ll even consider contractors whose credit rating isn’t spotless. If other factors stack up well, they can negate the need for a perfect credit history.
Documentation we need to support your mortgage application
No one can argue with our success at getting mortgages for contractors. How’ve we accomplished this? Because we know how to package applications.
Underwriters are busy people. We’ve spoken to them and understand what they need to approve a mortgage.
We package it just so, but do need the following supporting documents from you:
- your latest contract, plus previous contracts covering the last twelve months;
- a copy of your latest CV, updated to cover your recent contracting history;
- three months’ business bank statements;
- one month’s personal bank statement;
- proof of current rent or mortgage payment;
- proof that you have the deposit ready and waiting.
The money moment; let’s look at the numbers
The least deposit Metro will accept for a residential mortgage is 15%, or an 85% LTV mortgage. If you can’t muster 15%, do take a look at the rates we offer for smaller deposits.
Metro also offers Buy-to-Let mortgages as an investment option for contractors. The figures on BTL could differ and be subject to assessment on a per application basis.
As for how much a contractor can borrow, the bank uses 46 weeks to reach an ‘annualised’ income. The underwriters then use a multiplier of 4½ times the annual rate to calculate the upper limit.
The multiplier can vary, depending on other financial commitments and expenditure.
Metro is strict on those two factors. If subsistence and travel expenses and existing debt are high, that multiplier may decrease. The more you already pay out, the lower your potential maximum mortgage monthly payment.
Working out how much you can borrow from Metro Bank for a mortgage
Okay — so you’re sure you can meet all the Metro Bank lending criteria. Now you want to know how much you can borrow. Unlike High Street lenders who trawl through accounts, our calculation is much simpler.
In our example, we’ll assume that the applicant has few existing debts and expenses. Their day rate is £240, they work five days a week, 46 weeks a year:
- Take the day rate of £240 and multiply it by five to get a weekly rate:
- £240 × 5 = £1,200 per week;
- Next, take that weekly rate and multiply it by 46 to get an annualised figure:
- £1,200 × 46 = £55,200 per annum;
- Then extend that annualised figure by 4.5, the top multiplier, to arrive at the most they can borrow:
- £55,200 × 4.5 = £248,400 potential mortgage borrowing.
So, a contractor on £240/day can borrow almost £250k from Metro to buy their home. Does that seem a high price for entry? In real terms, that’s only £30/hr based on an 8-hour day.
Now those are lending criteria we can all work with!
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.