Mortgages for Contractors
There are a lot of mortgage options out there on the market today and it can be daunting knowing where to even begin. As a Contractor you may be wondering if there are specialist mortgages out there for you; there are more lenders becoming Contractor friendly and becoming more flexible towards Contractors.
Whether you are a Contractor looking to Buy to Let mortgages or a First Time Buyer, as you are a Contractor you will have a slightly different mortgage experience to those who are PAYE employed. You will need to prepare all of your documents in order to prove your income to a mortgage lender.
It can be worth seeking advice from a Mortgage Broker, who can help compare mortgage rates and find the right mortgage products for your circumstances. There are more options out there than just the high street banks and brokers can access them for you.
Tips for Contractors
There are a few things that you can do in order to boost your chances of being accepted when you apply for a mortgage:
- Keep your credit file clean
- Register yourself on the electoral register
- Keep your bank accounts in order
- Get your deposit ready
- Budget all expenses
- Speak to your accountant about SA302s and Tax overviews
- Have a decision in principle or agreement in principle in hand (if a FTB)
- Select a trusted solicitor
- Plan your survey
- Plan your move`
How is a Contractor’s income assessed for a mortgage?
If you have been a Contractor for a long period of time then a lender will take your income from the past few years and average it out to estimate your income in the upcoming years; thus assessing whether you can afford the mortgage you are applying for.
If you are a Contractor under fixed contracts under the PAYE system then there will be a clear log ready to access to let lenders know how much you have earned. If you are a Contractor operating as a Limited Company or as Self-Employed then you will need to provide a record of your salary and any dividends you have tied up in the business.
If your earnings are not stable and regular then it may be more difficult for you to find a lender. Lenders may deem you a high-risk borrower and only offer you higher end interest rates.
Getting a mortgage on a day rate
Some lenders will be willing to accept your mortgage if you are on a day rate. They will need to calculate how much you will expect to earn over a year’s period. Mortgage lenders will take your day rate and multiply it by the number of days you work in a year to get a total for the year. Speak to our broker to help you with this as there are limits to what they will accept.
What documentation do I need?
You will need to look into what your lender requires from you before applying for a mortgage to ensure that you have all the documents you might need. Lenders tend to ask for the following from Contractors:
- Contracts and agreements
- Signed business accounts
- SA302 forms and any other tax documentation
- Bank statements
- Proof of address and ID.
It is important to make sure that you can afford the mortgage that you are applying for. If you do not keep up with your mortgage repayments your home may be repossessed.
How much can a Contractor borrow?
A lender will look into your credit history and earnings and make a decision on how much you are able to borrow. Typically, you will be able to borrow up to five times your annual salary.
You will need at least the past six months’ worth of accounts, this includes any earnings and tax documents. Most lenders prefer for you to have at least two or three years ready alongside your mortgage application.
What deposit will I need?
Typically, you will need at least 10% of the property’s value in the form of a deposit. If you are a First Time Buyer or buying a new building, the Government offers schemes such as Help to Buy to allow you to access more properties with just a 5% deposit and will match it with 20%.
As a Contractor, the more of a deposit that you can provide – the better. Lenders can sometimes shy away from Contractors due to the complexity of assessing whether you can afford what you are applying for or not. A larger deposit acts as an incentive for the lender to say yes to that application quicker.
How will a Mortgage Broker help?
A Mortgage Broker has access to the mortgage market and can offer mortgage deals that high street banks cannot. There are a range of different mortgage products out there and plenty of lenders too, it can be daunting knowing where to begin.
A broker will look into your personal circumstances and tailor their advice to you, picking out the right lenders for the position that you find yourself in. Mortgage loans can be complicated and they are a big commitment too, it is important you are aware of all the mortgage options you have.
Brokers can help you prepare your documentation as well as talking you through the mortgage application process to ensure you know exactly what you are getting yourself into. There are so many different variable rates, discounted rates and fixed rates out there it can be hard picking the right mortgage loan for you.
Get in touch with a Mortgage Broker today to start planning your future, there’s no point going at it alone when there are experts here to guide the way!