The process of applying for a mortgage as a contractor is very similar to that of a traditional employee – although your proofs of income and employment will be provided by your own company, and accountant, rather than an ’employer’.
And, as alternative types of employment have boomed in recent years, there are many lenders who are keen to lend to contractors and the self-employed.
The key to a successful application lies in using a specialist mortgage broker and making sure you can provide all the paperwork required in a timely and accurate manner.
Here are the typical steps you will take when applying for a contractor mortgage.
1. Choose a mortgage broker
There are many ways to choose a mortgage broker – use your (or another) high street lender directly, use a mortgage comparison site, or find a specialist lender.
Of course, you may well have a successful experience with mainstream brokers, but from our experience, we’d recommend hiring a contractor-specialist to search the market for you. A specialist will be very familiar with contractors, their finances, the paperwork required, and how to deal with potential problems. They will also have access to rates and products which have been designed especially for the contractor market.
The broker will be able to provide you with a range of potential products, based on your preferences, the mortgage types you are interested in, and your contract rate / annual company profit.
Once you have narrowed your search down to one product, the broker will try to arrange an agreement in principle.
2. Provide information
Mortgage lenders will require a wide range of information and data from each applicant. The proof of income documents will vary according to the lender/broker/ your position.
For example, you will be able to secure a mortgage based on your contract rate alone, whereas other contractors may be asked to provide their company / personal accounts if they have been in business for several years.
For limited company contractors, the information required will depend very much on your position. Documents include:
- Copies of your ID (passport, driver’s licence).
- Proof of residence (your address) – Council Tax/utility bills, etc.
- A copy of your contract / previous contracts (for new contractors / no accounts available).
- An up-to-date copy of your CV (for new contractors / no accounts available).
- Copies of previous P60 forms (for new contractors / no accounts available).
- Copies of your limited company’s accounts signed/stamped by a qualified accountant.
- Copies of your SA302 (HMRC personal tax calculations).
- Up to 6 month’s worth of bank statements.
3. The mortgage offer is sent out
Once the lender has undertaken credit checks and validated all of your documents, they will issue a formal mortgage offer.
4. Undertake the legal process to buy the property
There are a number of legal steps the applicant(s) and their solicitor need to undertake when buying a property.
You will need to arrange a survey on the property, secure all necessary paperwork from the buyer, and when all legal checks have been done, transfer a deposit so that exchange can take place. The deposit is typically 5-10% of the purchase price – which you will need to provide in cash.
Your mortgage broker will liaise with your conveyancer to ensure everything goes smoothly.
And finally, on completion day, funds will be transferred from your solicitor to the buyer’s solicitor, and the property will be legally yours.
What are your mortgage options?
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