First Time Buyer Contractor Mortgages
Buying your first home as an independent contractor needn't be an arduous task. It shouldn't be as tough as mainstream lenders often make it for self-employed professionals.
We have the solution: we can use your contract rate alone to get you onto the property ladder. That's true even for contractors who are first-time home buyers!*
Every step of the home-buying process can be stressful, even for seasoned homeowners. If it's your first home, we know that many of these steps will seem alien to you.
But as a contractor, it's not just surveys, solicitors and estate agents you have to worry about. Your problems begin before you can even think about moving in.
That's because most mortgage lenders struggle to understand your unique environment and payment structure. *This is even truer amidst the confusion of the current pandemic climate.*During these uncertain times, lenders have identified new levels of risk. Low LTV mortgages blip on the radar, then disappear just as quick. If you're looking to buy now, be thinking about a 15%-20% deposit at least.
Some lenders have withdrawn mortgages altogether to give their staff time to catch up. Backlogs, work-from-home staffing and high demand are pushing turnaround times out.
All the old rules, it seems, have gone out the window. Now more than ever, contractors need the help of a seasoned broker to buy a home. That's where we come in.
From our London office, Freelancer Financials has helped many contractors buy their first home. If you operate through a limited company, we can help you onto the property ladder, too. Let us show you why we're market leaders in specialist mortgage lending.
Specialist lending for first-time buyer contractors
Freelancer Financials' prime function is as an FCA-accredited specialist independent mortgage broker. Our experience dealing with contractors from all industries has immeasurable depth. We understand the different ways in which contractors work:
- Limited Company;
- Personal Service Companies;
- Umbrella Companies.
Knowing how you work is key to us securing competitive first-time buyer contractor mortgages. We're so close to our underwriters, they often offer us exclusive terms, which we pass on to you.
Given this, we know we can secure you your first mortgage based on your true affordability. And that's important. Here's why.
Using your gross contract earnings to work out what you can afford
We can secure first time buyer contractor mortgages based on your gross contract earnings. This is great news if you've just started contracting and/or have less than 3 years accounts.
From experience, we know that many first-time buyers fit into that bracket. When you realise your greater disposable income, it conjures possibilities.
For many new to contracting, buying a home is their first milestone on the way to long-term security. This is how we make it possible.
Mortgages for contractors without accounts or payslips
Contract based underwriting is how we work out contractors' mortgage affordability. And the great news is: it doesn't rely on accounts!
Avoiding accounts means we can incorporate your 'annualised' day rate into affordability calculations. It also helps us get mortgages for contractors from their first contract.
Using this concept, we've negotiated unique terms and rates with many mortgage lenders. Some of those lenders you may have tried yourself already and failed.
But don't worry if you've failed before. We almost expect it if you've gone direct to a High Street lender. Their affordability calculations rarely rely on contract based underwriting. Ours do, meaning that our contractor clients can get mortgages without accounts or payslips!
First-time buyer mortgages for Umbrella contractors
It's not only limited company contractors whom we can avail of contract-based underwriting. We also help contractors operating through an umbrella payment structure.
And they do need help, even if they think they've got the best of both worlds with pay slips. Those pay slips or tax returns differ from a permie's pay slip, and not in a good way.
Present anything other than the norm to most High Street advisers and they falter. That's the main problem umbrella workers face. The net 'take home' figure on their pay slip won't reflect the true value of their contract.
Tax-Planning: you get what you PAYE for
On the High Street, lenders' criteria use a one-size-fits-all self-employed affordability calculation. That calculation uses salary and dividend drawings input, but can't use retained profits. Any resulting offer won't reflect your net profit or gross contract earnings.
Let's face facts: we've all seen contractors' accounts after deductions. Tax-planning is great for income retention, but it's woeful for proving mortgage affordability!
Using day rates to work out affordability bypasses all that nonsense. 'Annualising' a contractor's gross day rate is the crux of Contract Based Underwriting. Using this method, contractors can often borrow much more.
How much can I borrow on my contract rate?
So, now you know what you're up against, you want to know how much you have the potential to borrow. To do that, we first need to work out your gross contract earnings.
You can either do it long hand, which we'll explain here. Or you can visit our special contractor mortgage calculator.
The calculation works just as well for first-time homebuyers as it does those longer in the tooth.
If you want the long hand way, here's the maths behind the calculator. First, you need to multiply your daily contract rate by the number of days contracted in a week.
If you're on an hourly rate, first multiply that by the number of hours you work to get your day rate. Most lenders equate 8 hours to a day and 5 days to a week.
Once you have your weekly rate, calculate that by multiplying it by 46. That should be the number of weeks you work per year. It's also the least lenders use, although some will use up to 48 weeks to work out your annual income.
Then, there's the lender's multiplier. That's the number they multiply your annualised income by to work out how much they'll lend. As a guide, we secure mortgages for contractors between 4.5-5 times their annual income.
An example: how contract based underwriting works
So a contractor on £400 per day could borrow £414,000 to buy their first home. As an example calculation, it looks like this:
- £400/day × 5 days = £2,000 per week,
- × 48 weeks/year = £96,000,
- × 4.5 (lending multiplier) = £432,000.
To save all that ink, you can just try it in our calculator, here:
Contractor Mortgage Calculator
How much can I borrow on my daily rate?
Potential Borrowing = £
What evidence of income and documentation do I need?
I know: you're dreading this bit. Especially if you've tried the High Street, already. But don't fret.
Yes, you need to know what documents lenders need to approve a first-time buyer mortgage. But again, with our process, the paperwork is minimal.
It goes back to Freelancer Financials only dealing with senior underwriting teams. Like us, they 'get' contracting. That means they need a lot less than paperwork then you think to assess your mortgage application.
Are you ready? Here goes; all they need from you is:
- a signed copy of your contract confirming your contract rate;
- 3 months bank statements, confirming your contract earnings;
- a copy of your updated CV confirming your employment history;
- proof of ID.
There you go. Wasn't that painless?
And it is that simple when you go through a specialist. An advisor on the High Street may ask for way more paperwork than this. If they do, the likelihood is they're offering you a different type of mortgage.
As a first-time homeowner, you want the best possible platform to start. So stick to your guns: ask them if they use accounts, pay slips or your contract rate in their calculation. Any method but the latter and what they offer won't reflect your gross income.
Why choose Freelancer Financials to arrange your first mortgage?
Contractor mortgages have been around for a decade, but adoption on the High Street has been slow. In recent years, we've exerted enormous time and effort negotiating special income underwriting criteria.
Since 2015, we've seen many new contractor-friendly lenders come to the fore. But, by comparison, their number is minuscule compared to the number of lenders on the High Street.
We can't emphasise enough the importance of a specialist broker handling your mortgage application. It's even more important when you're a first time buyer. You need to begin your quest for homeownership on a solid, but affordable, platform.
Don't settle for less than the right package for you
Another key part to the process is packaging your application 'just so'. Underwriters can be sticklers, especially for those new to contracting.
High Street staff won't get that, even if their bank states that they're 'contractor-friendly'! Just be careful.
Your broker must deal direct with senior underwriters and key stakeholders within major lenders. This will ensure that all parties process your application in a swift, hassle-free manner. And it will make sure that you get the mortgage that befits your contract income.
Specialist brokers like us do know how to package your application for underwriters. We can place it in front of the right decision-makers, avoiding branch staff networks. And we do have those direct lines. In many instances, we've even helped those teams understand contracting.
You're an independent professional: time is money!
We know that your time is your money, as it is for all contractors. This insight drives our streamlined service, offering you advice via phone, email and post.
As much as we'd love to, we don't need to meet you face-to-face. But by not putting you through lengthy face to face meetings, we speed up the application process.
A combination of all these factors will expedite your first-time buyer contractor mortgage application.
Together, we'll get you into your new home in a swifter and more cost-effective manner.
Our specialist advisors, independent professionals themselves, are always happy to answer your questions.
Not got time to call us right now? Enter your details in our Request a Callback form and we'll call at a time that suits you.
If you've never bought a home before, we're sure there's lots you want (and need) to know.
But don't worry. We're in the right place to provide first-time mortgage advice to contractors. As are you, now; we'll help you get that foot up onto the property ladder you need.