If you have found your dream property but have been unable to secure the finance you need nice and quickly, you know just how frustrating this situation can be.
You may have even approached a couple of high street lenders and been told that you do not meet their criteria, but all is not lost. If you’re a contractor, chances are that you’ve simply been looking for your mortgage in the wrong place – an easy mistake.
The vast majority of high street and mainstream lenders have a number of boxes that contractors are simply unable to tick. Short-term contracts and changing rates of pay present too much of a risk and do not provide the long-term security many lenders look for. But that doesn’t mean the right deal isn’t out there.
Can contractors get mortgages?
Absolutely, but they might have to move away from the mainstream lenders and focus more on specialist contractor mortgage providers to do so. Contractor mortgages are available to a wide range of self-employed workers, from sole traders and company directors to contractors and freelancers. Basically, anyone who is assessed in a different way to a PAYE employee can apply for a contractor mortgage.
So, whether you’re an engineering contractor struggling to find a competitive deal, or you’re looking for an IT contractor mortgage that gives a true reflection of your affordability, a specialist contractor mortgage is definitely the way to go.
What if you’ve recently started contracting or your current contract is due to expire?
In either case you should still be able to secure a competitively priced mortgage. If you’ve only just started contracting, we can approach lenders who are happy to assess your application based on your current contract rate.
If your current contract is due to expire, you can still apply for a contractor mortgage. Most lenders will expect to see at least 8 weeks remaining before your current contract is due to expire. However, there is some flexibility if the client or agency indicates the contract will be renewed or extended. Alternatively, if you’re an engineer contractor with only a few weeks to run on your contract, it might be preferable to secure a new contract before you apply for a mortgage.
Why might a contractor mortgage be a better option?
So we’ve answered the question ‘can contractors get a mortgage?’ but is a contractor mortgage necessarily the best option?
In many cases, because the affordability of a contractor mortgage is assessed using a contractor’s daily rate, you will actually be able to borrow substantially more than a standard mortgage. Small business owners looking for a traditional mortgage find their borrowing is restricted by having their salary plus dividends drawn down. However, specialist mortgages, such as an IT contractor mortgage, are based on your current contract rate projected to an annual salary, which is likely to be significantly higher.
How much might I be able to borrow?
As is the case on the high street, this is likely to differ from lender to lender. However, you should be able to get an idea of how much you can borrow as a contractor by simply multiplying your daily rate by the number of days you work a week, then multiplying that figure by 48 weeks. Multiplying this figure by 5 will give you an idea of the type of figure you can expect.
For example, if you are an IT contractor earning £250 a day and working 5 days a week, you could expect an IT contractor mortgage of around £300,000. And to secure this mortgage, rather than providing 3 years of accounts, all you’ll need is your signed contract, your CV, three recent bank statements and a proof of identity.