Saffron BS Contractor Mortgage Lending Criteria
Saffron Building Society offers bespoke mortgage products for both the self-employed and contractors. Their advisors assess both ways of working differently, according to how each get paid.
We cover contract-based underwriting, the method used for contractor mortgages, here. For details using the self-employed method, you can visit our sister site, selfemployedmortgages.com.
The Saffron BS approach to contractor mortgages
If you’ve visited this page before summer 2016, you’re in for a pleasant surprise today.
When the Saffron first opened its doors to contractors, its lending criteria was strict. It demanded:
- extensive cover from the length of time a contractor had left to run on their contract;
- that the contractor have at least two years’ contracting under their belt.
That’s no longer the case!
Saffron’s lending criteria has softened, showing real intent. They’ve expanded their catch net, and some:
- the building society now accommodates contractors with less than six months on their contract;
- you don’t have to be working in the IT sector;
- you no longer need to have been contracting for two years;
- if you’re working on a contract-to-contract basis, profession is irrelevant.
In short, Saffron BS contractor mortgages are available to ALL contractors.
Saffron mortgages: documents and evidence
We’re not saying that the building society doesn’t follow responsible lending guidelines. It does, as does every mortgage company whose products we offer.
The Saffron BS contractor mortgage lending criteria is now just a bit more flexible. Let’s take a closer look at their new look in greater detail.
Apply for a mortgage from Day 1 of your first contract
The biggest change at Saffron is that they now accept applicants from day one of their contract.
As long as the contractor has been working in the same profession for two years, they’re good to go.
That two-year history could comprise a mix of being an employee and contracting. But it could also be all as an employee.
So, in essence, Saffron BS accepts contractors from Day 1 of their first contract. To qualify, contactors must be able to:
- evidence both their employment history and their new contract;
- provide a CV and a copy of the new contract detailing that evidence;
- provide 3-months’ invoices;
- submit 3-months’ bank statements to corroborate those documents from a financial perspective.
If you need a contract extension, clients or agencies are often happy to help if you explain why. Our advisors can also offer specific insight, having dealt with similar scenarios before.
That’s the first change and you have to say, it’s a game-changer for the building society.
Mortgages Saffron offers to contractors
Saffron offers contractor mortgages up to 90 percent LTV. This means you only need 10% deposit to get on the property ladder through this lender.
They assess a potential borrower’s annual income based on their daily rate over 48 weeks. The calculation assumes that the applicant invoices for five day’s work a week.
As a rule, they forego the traditional yes/no credit score system.
Instead, they have a team of experienced mortgage underwriters. This enables the building society to assess each mortgage application on its merits.
This practise adds a level of flexibility uncommon on the High Street. It also ensures that they base their mortgage offer to you on your genuine affordability.
Interest only — a change for the better
Another change the building society has made is with interest-only mortgages. They’re now offering them, in specific circumstances*, alongside repayment mortgages.
Introducing interest only mortgages mirrors changes in the mortgage market nationwide.
Leeds BS began offering interest-only in its pilot contractor mortgage scheme. Other mortgage lenders are bringing back the once-popular repayment vehicle, too.
Established homeowners will remember interest-only mortgages with great fondness. That’s because they’re a great way for independent professionals to buy their homes.
Due to fluctuation in income, contractors can pay off sizeable amounts of the balance at a time.
This is a practice Saffron not only allows, but actually encourages:
“With our variable rate products you can even pay off capital and enjoy a lower rate. This can help you pay off your mortgage faster.”
*If you’re selling and/or downsizing, this could well be the way forward for you. The most contractors can borrow for interest only is 70% of the home’s value. You must also have £250k equity in the home you’re selling.
Age no longer a barrier as Saffron moves with the times
Let’s have a quick chat about the credit crunch. We know that mortgage lenders had to tighten their belts in the fallout from recession.
This, in some way, led to lenders like Saffron introducing stricter lending criteria.
It also led to a rise in self-employed numbers in the UK labour market.
At first, commentators assumed that the swell in the ranks came from disgruntled employees. What had they got to lose starting their own business?
Job securiy was almost non-existent. Wages were froze. The outlook was bleak. The initial interpretation put the rise in start-up businesses at the feet of ex-employees.
It took a breakdown by age of the UK’s self-employed workforce to see the reality. The over-65s, or ‘olderpreneurs’, accounted for an unexpected percentage of newly self-employed.
As of June 2016, the number of over-65s working is 1.2 million. Based on post-recession history, ⅓ of those are self-employed.
In response, Saffron has removed the barrier of age from accessing self-employed mortgages. You’ll no longer get an automatic “No!” if your mortgage ends after you’re 75.
Each applicant who’s in this situation will receive a ‘refer’ decision. That reference means you’ll leave a ‘soft footprint’ at the decision in principle stage.
Like all contractor mortgages, your case will receive an individual appraisal. Now, we like to get to know all our customers. In this case, chatting to you to understand your circumstances is imperative.
We need to know how you’ll fund your monthly repayments in retirement. If you’re going the interest-only route, we need to grasp your exit strategy.
Once we’ve collated all that, we’ll pass your application to Saffron’s underwriters.
Again, this is a massive plus for Saffron. Around 400,000 olderpreneurs are in business for themselves in the UK. They may have thought a new mortgage unrealistic. Not any longer!
Saffron – welcoming Contractors from all niches and pay grades
So, do your contract earnings fall short of typical High Street expectations? Or do you offer services in a sector that falls outside the traditional contractor safety net?
If so, Saffron could be the lender for you. Here’s an overview of the building society’s lending criteria:
- You must have worked in the same type of industry for two years prior to application;
- Saffron calculates your annualised income for lending purposes as ((Daily £ Rate × 5) × 48);
- Saffron does not accept applicants with adverse credit scores;
- you must be at least 21 to apply for a contractor mortgage;
- proof of income documentation required is your:
- current and previous contract;
- last three months’ invoices;
- last three months’ bank statements, showing invoice credits;
- your up-to-date CV, outlining previous employment history.
Saffron can be a great option for contractors who work in industries that other lenders avoid. The rates they offer may be a little higher than those available from other lenders. Especially compared to rates offered by other contractor-friendly banks and building societies. A standard variable rate mortgage with, say, The Halifax, would attract a lower rate. And the monthly payments would be a lot cheaper.
But the type of mortgage funding we offer through Saffron isn’t for a run of the mill contractor. Mortgages for, say, IT professionals have become more accessible. But we strive to cater for those career paths less trod, too.
Saffron contractor mortgages are a great addition to our product range. So, do you work in a non-preferred sector and earn less than £312.50/day or £75k per annum? Then, yes: they could provide the missing key to your search for home finance.
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.