There was a time when, unless you were a traditional 9-5 employee, your chances of being able to secure a mortgage (at a reasonable rate of interest) were slim. In recent years, the major mortgage lenders have relaxed their lending criteria in line with the changing nature of the UK’s workforce.
- I’m a first-time contractor. Can I get a mortgage?
- How does the mortgage application process work?
- Can contractors get access to ‘high street’ rates?
- Do contractors have access to 95% LTV mortgages?
- How much can I borrow?
- What mortgage products are available to contractors?
- Top 5 tips for a successful application
- Get a quote from a specialist mortgage broker
Despite this, some contractors may still have difficulty accessing ‘high street’ mortgages, especially if they are unable to prove their income (for example, if they have only recently started contracting, or don’t have several years’ company accounts).
For this reason, we’d recommend using a specialist IFA who has access to ‘contractor-friendly’ mortgage lenders who understand the way contractors work in practice. You can get in touch with our partner broker, CMME, using the form below:
Read on for answers to the most commonly-asked questions about securing a mortgage as a contractor.
Can a first-time contractor get a mortgage if they don’t even have company accounts yet?
If you go to your local bank or building society branch in search of a mortgage then the in-house mortgage consultant will inevitably ask to see three years company accounts to verify your income, which can be impossible if you are new to contracting. Even after many years in the field, you may still not want to draw a taxable income sufficient to secure the mortgage you need.
A specialist broker will bypass this archaic system by approaching key mortgage underwriters direct to negotiate specialist terms for contractors.
Using a multiple of your annualised contract rate rather than your company accounts will allow you to borrow far more because any tax saving methods that your accountant has recommended will have no impact on your loan amount.
How does the mortgage application process work?
As a first time contractor, you would traditionally have had to hold off on your goal of home-ownership until you had built up 2-3 years’ worth of accounts, but contractor-friendly lenders will simply require a copy of your current contract, three months’ bank statements, photo ID and a utility bill for proof of address.
As long as you can produce these documents, a specialist broker can often secure a mortgage on day one of your first contract, so there is no need to wait to buy your new home or remortgage.
Read our dedicated article – how does the mortgage application process work.
Can contractors get access to ‘high street’ mortgage rates, or will they have to pay a premium?
If you are applying direct to the lender then they may charge a premium depending on what your accounts show and how long you have been contracting, or they may demand that you pay a higher deposit.
However, the contract based underwriting that our partner CMME has negotiated with these High Street lenders allows you to access the same rates as your permanent colleagues, because they have an extensive history of preparing their clients applications correctly and only submit cases that they know will meet the lender’s criteria.
As such, CMME have built up a level of trust with the underwriters that means they often have access to exclusive rates that are not available direct or through other brokers.
Can I get a 95% contractor mortgage?
The answer is yes, however more competitive deals are usually available to borrowers with a minimum of 10% deposit.
If you are a contractor and have only got a 5% deposit, then a specialist lender can help in two ways either via the Help To Buy scheme where an additional 20% (40% in London) deposit is provided by a Government-backed loan scheme in order for you to purchase a new build property.
Or with lenders offering both 95% products and a contractor-friendly policy. Multiple High Street lenders are willing to lend using specialist contractor criteria to contractors with a 5% deposit.
How much can I borrow?
Unsurprisingly, this depends on a number of factors, including:
- The size of your deposit.
- Your contract rate / other income.
- Any existing financial commitments you may have.
- Your credit rating.
- How many applicants there are.
However, in general, contractors should be able to borrow up to 5 times their annualised rate via our partner’s mortgage lenders.
What mortgage loan products are there?
Depending on your personal circumstances, there are a number of mortgage products on offer to contractors.
Your mortgage will either be fixed rate (where the interest rate remains constant over a fixed period of time), or variable rate (where the rate may change – such as when the Bank of England raises the base rate).
The majority of mortgages are repayment (where you repay part of the capital loan, plus interest each month). Interest-only mortgages are far less widely available these days, as the mortgage industry has had to tighten up its lending criteria following the credit crunch a decade ago.
There are many types of variable rate products available – including those which offer discounted, tracker, and capped rates.
Your mortgage broker will be able to present you with a variety of mortgage options. Make sure you know what the real cost of each option is, once you take any introductory fees, and other charges into account.
Read our dedicated article – what mortgage products are available to contractors.
Top 5 tips to securing a mortgage
- The higher the deposit you can raise, the more products will be available to you, and better rates of interest.
- Try to avoid lengthly gaps between contracts.
- Consider mortgage products which allow overpayments, without any penalties.
- Make sure you have all of your paperwork in place (ID, proofs of income, contracts) to minimise delays.
- Try to keep your credit rating strong – make sure you’re on the electoral roll, and don’t miss any credit payments.
Find out how much you can borrow
Fill in your details and one of CMME’s expert advisers will contact you to arrange a free consultation.
IT Contracting are not authorised to offer regulated mortgage advice. IT Contracting are introducers to CMME. Financial advice is given by CMME, which is a trading name of Mortgages Made Easy Limited and is regulated and authorised by the Financial Conduct Authority (FCA reg. 414798).
Your home may be repossessed if you do not keep up repayments on your mortgage