IT contractors who operate through their own limited company who apply for a mortgage are often declined.
Afraid you can’t get a mortgage now that you’re a contractor?
The main reason for this is that their accounts don’t reflect the income that they need for the mortgage loan that they are applying for. Or in the case of an IT contractor who works through an umbrella company,
any payslips or P60s that you provide will probably raise more issues when it comes to providing evidence of your affordability.
Great News! A number of contractor mortgage advisers can secure "High Street" Mortgages for Contractors. These mortgage specialists have made arrangements with senior underwriters which enable them to provide the same “High Street” mortgages as a permanent employee.
How do they do it? These mortgage specialists are primarily focused on providing mortgages for contractors. Over the years they have established contacts and relationships with senior underwriters and policy makers to inform them of the unique employment status of contractors. This enables them to avoid the bank branches of mortgage lenders by packaging and submitting applications of contractors directly to specialist underwriters who are completely familiar with how IT contractors work.
Why should you choose a contractor mortgage brokers?
Over 90% of their clients are IT contractors and therefore completely understand how you are compensated and which lender to submit your mortgage application to ensure success. They ensure that mortgage rates are competitive and select banks that will use your contract rate to assess your affordability. This avoids the need to submit company accounts that first time IT Contractors do not have and that will not, in any case, truly reflect your income.
Will I have to pay a large fee?
Many contractors are under the misconception that lenders that assess them based on contractor based underwriting will be charged higher lender fees than permanent employees, this is definitely not the case. The same competitive rates that are available to permanent employees are also available to Contractors at the same fee structure. So if the lender arrangement fee is £499, the fee is exactly the same to the contractor. Never allow a lender to penalise you because of your contractor employment status.
Will I need to put down a larger deposit?
No, why should you? This is another fallacy. Ok, the days of lenders offering over 100% mortgages are long gone, but that applies to everyone not just Contractors. However, lenders are offering 90% mortgages, which are available to both contractors and permanent employees. They won’t be as competitive as mortgage products at 85% LTV (15% deposit) but for those first time buyers that can only afford a 10% deposit, the rates are around 5.99%.
Lenders are trying to encourage people to put down larger deposits by offering more competitive rates for those who can afford bigger deposits. For instance, with a 15% deposit you can secure yourself a rate less than 4%.
How long will it take to get an agreement in principle?
Many of the high street lenders can provide an “agreement in principle” the same day. This is not to be confused with a “Mortgage offer”. An agreement in principle is simply a mortgage promise that states that you have passed the lenders credit score. Before any lender will accept your full application, they need to check your credit history to ensure that you do not have any adverse credit. It is critical that you do not submit multiple applications to lenders as this does leave a foot print on your credit score.
What is a Mortgage offer?
Once the lender has received your packaged application from the mortgage specialist handling your application, they will instruct a valuation (survey) on the property to be mortgaged. The lender needs to ensure that it is suitable for lender purposes. Meanwhile, the underwriters are checking all your documentation and application to ensure that they can lend to you. If the valuation report is fine and the documentation underwritten, then a mortgage offer is issued to your solicitor, yourself and a copy to the mortgage broker. This whole process can take between 3-4 weeks depending on the lender.
What documentation will I need to submit?
You will need to submit the following documentation to secure an IT Contractor Mortgage:
1. A copy of your latest contract confirming your rate
2. A copy of your business bank statements confirming your contract earnings
3. Latest copy of your CV
4. Proof of ID and address
This also applies to non IT Contractor’s, there are contractor mortgages available to non IT professionals, like accountants, management consultants, engineers, Finance and accountancy.
If you need to secure a contractor mortgage you should get in touch with a contractor mortgage specialist.
