Applying for a mortgage, and taking on a new property can seem a daunting prospect. Here are some of the most commonly asked questions which should help alleviate any concerns you have when approaching a contractor mortgage broker.
Can I use a high street broker to get a mortgage?
Yes – there are many approaches you can take to secure a mortgage – your own bank, another high street bank, or by using a comparison site. However, you will usually be better off by using a specialist broker who has experience of dealing with contractors. A specialist will have access to a range of mortgage products which have been tailored for the unique working and financial position of contractors.
Do contractors have to pay higher interest rates on their mortgages?
No, contractors are not seen as ‘high risk’ workers – as perhaps they were a decade or so ago. Many lenders are more than happy to lend to contract workers – and rates are no different to those of traditional ’employees’.
How many years’ accounts do I need to prove my income?
Although most company owners will need to provide company accounts to prove their income, specialist lenders are able to secure you a mortgage based on your contract rate alone. The unique nature of contracting used to be a hindrance when buying property, however these days many lenders are happy to provide mortgage products to new contractors, based on the terms of your current contract.
I’ve just started contracting. Can I still get a mortgage?
Yes. Specialist lenders can arrange mortgages for contractors who have just started their first contract.
What paperwork will the broker need from me?
All lenders will require proof of your name, address and income. If you are applying based on your contract rate alone, you will need to provide a copy of your contract. If you’re applying using your company’s accounts, then you will need to provide signed copies. Find out more in our mortgage application guide.
What is an Agreement in Principle?
When you / your broker approaches a lender, and have provided them with your basic details, they will provide you with an Agreement in Principle (Decision in Principle) – which states, subject to further checks and proofs of income, they will be willing to lend you £x. This is not a guarantee that they will lend to you, but should give you confidence to make an offer on a property. An Agreement will typically last from between 60 and 90 days.
What is a Mortgage Offer?
Once a lender has completed its full checks, they will offer you with official confirmation that they are willing to lend you an agreed sum. A formal mortgage offer is still, of course, subject to conditions – including getting a satisfactory valuation report from a surveyor. A formal mortgage offer will typically be valid for between 3 and 6 months.
How much can I borrow?
Unsurprisingly, this depends on your income (your contract rate, or you past few years’ accounts). However, contractor specialist mortgage brokers estimate that you can secure lending of between 4.5 and 5 times your income.
If you are basing lending on your contract rate, first multiply your daily rate by 5 to get your weekly rate, then multiply this by 48 weeks in the year.
For example, if you are on a daily rate of £400, you should be able to borrow £432,000 (based on a 4.5 multiple).
Do I need a large deposit?
Not necessarily – in some cases a broker will be able to arrange a 95% mortgage, however you will be able to access much better interest rates if you are able to provide a larger deposit – from 10% and above.
How does Stamp Duty work?
When you purchase a residential property, you have to pay tax (Stamp Duty Land Tax) – which is based on the purchase price. You can find out your SDLT using this calculator. There is a SDLT discount if you’re a first time buyer, and a premium to be paid if you already own a property. Find out more in this official guide. The tax is paid upon completion of the property purchase, so make sure you put aside funds to cover this additional cost.
What about Self Cert mortgages?
Before the credit crisis, may self-employed people were able to secure mortgages on a self-certification basis. Unsurprisingly, this type of product is no longer available, and lenders now take a much more stringent approach to lending – to ensure that applicants are able to meet their repayments.
What costs should I expect to incur when I apply?
You may need to pay your broker a fee for mortgage advice (this is standard practice). You may also have to pay the lender an ‘application fee’ – which is becoming increasingly common. Other typical house purchase costs include: stamp duty (see above), solicitors’ fees, and surveyors’ costs.