NatWest Contractor Mortgage Lending Criteria
Natwest is the latest of the 'Big Four' banks to offer mortgages to contractors. The lender has identified the huge shift in the way Britain works post-recession. In late 2016, the bank announced its change in policy in favour of the contracting community.
To date, we've added many contractor-friendly mortgage lenders to our portfolio. As we've grown, we've worked on NatWest, asking them to grow with us.At last, the mortgage provider has embraced the growing ranks of contractors in the UK. The bank, part of the RBS Group, has now issued its full contractor lending criteria.
Here's what you can expect from a NatWest contractor mortgage through us.
Top-earning contractors only need apply
Okay. Let's state right up front: NatWest contractor mortgages aim high. Only those on a day rate of £326.00 or more need apply. Annualised, that's gross income of £75,000.
Many mortgage providers joining the party are taking a similar stance. The reason they demand a high day rate is to reduce risk.
It's nothing personal. We must recognise the scrutiny bigger banks have fallen under since 2007. Responsible lending remains the byword almost ten years after the economic bubble burst.
Some lenders set contract income high, but reduce other barriers. NatWest contractor mortgage lending criteria isn't so flexible. Underwriters want evidence of both a solid income stream and that it's sustainable.
But that's not the end of the story, by any means. It's also is where our relationship with NatWest will pay you dividends.
Our advisors have existing relationships with underwriting teams there. That grants you access to a contract-based mortgage you won't find in-branch on the High Street.
The Ideal Contractor Borrower Profile for a NatWest Mortgage
It's not only your income that NatWest look at when appraising you. They also want to see your work history, in line with reducing risk.
They need proof that you've earned the level of your contract rate. They also want to make sure that you can continue to do so.
Some contractor mortgage lenders accept applicants from day one of a first contract. Not NatWest. The lender wants at least six months' contracting history before they'll consider you.
Underwriters also want to see another six months on your contract at time of application. As many contracts are only for a six-month duration, that can be a problem.
Can you only apply for a NatWest mortgage right at that moment between contracts?
Well, no. You cannot expect the day you spot your dream home to coincide with your contract extension.
So what the lenders does to combat this scenario is quite clever. They want twelve month's contracting history that incorporates the date of your application.
Imagine that you've been contracting for nine months. One six month contract completed and half way through the next. That give you nine months history and three months guaranteed work. That is an acceptable scenario.
One way NatWest leads the market is for contractors who've been contracting for 12 months or more. Most lenders like to see at least three months left on your existing contract. If not, they ask for an extension.
With NatWest, you only need one month left on your contract if you've a year's history under your belt.
One unusual request by NatWest is how you construe your limited company. Specifically, the shareholding thereof.
Contractor applicants must own 100% shares in their limited company. For tax efficiency, some contractors allocate shares to spouses or other third parties.
If you have any other shareholders, then NatWest won't consider you. This situation, I’m glad to say, is under review with their lending team. We'll update these guidelines if anything changes.
Calculating how much you can borrow
Here’s how to work out the size of contractor mortgage that you can afford. The example I use is based on a contractor earning £330 per day, working five days a week.
First, you need to work out gross annual income. NatWest uses 46 weeks for this part - the annualisation - of the calculation.
The sum then uses a multiplier to generate the ceiling of your borrowing potential.
This could be either 4.5 or 5, depending on other factors about you. Credit history, mortgage LTV and existing financial commitments will determine which they use.
In figures, our example calculation (using the × 4.5 multiplier) looks like this:
- £330 (day rate) × 5 (days worked per week) = £1,650;
- £1,630 (weekly rate) × 46 (weeks a year) = £75,900;
- £75,900 (gross annual income) × 4.5 (average multiplier) = £341,550.
So, a contractor on £330/day with a good credit rating you could borrow £341,550 for a mortgage.
For limited company contractors on £326/day or more, mortgages are now more accessible. If you’ve struggled to borrow what you need, NatWest may well be the solution you’re looking for.
Documents required to package your mortgage application to NatWest
If the NatWest sounds like the lender you want to work with, then great. We can help. Here are the documents we, as your mortgage broker, need to process your application:
- An up-to-date CV is mandatory, outlining your employment and contracting history;
- Current and previous contracts to evidence 12 months contracting history and contract rate.
- 3-months personal and business bank statements
- Proof of ID and address - a form of ID, such as a passport, driving license or utility bill.
Summary of Lending Criteria to qualify for a NatWest contractor mortgage
In summary, then: here's what contractors need to get a mortgage with NatWest:
- NatWest will accept the gross value of your current contract as evidence of income;
- NatWest lending criteria requires a minimum income of £75,000 or £326 daily rate;
- Gross annual income (for lending purposes) calculated as Daily Rate x 5 (days) x 46 (weeks).
- At the time of application, the borrower must have at least 4 weeks left to run on their contract. If not, they must provide evidence of a contract renewal/extension;
- YNo more than a 6-week gap between contracts during a 12-month period;
- Contractors operating through a Limited Company must be a 100% shareholders;
- NatWest contractor policy does not include contractors who operate through an Umbrella Company.