Applying for a mortgage to buy your first home can be an exciting if perhaps sometimes daunting process. With many different lenders out there and literally hundreds of mortgage products on the market, it can be difficult to know where to start.
If you are a contractor, there are additional factors to consider, too – not all mortgage lenders are equally disposed to lend to those not in regular, salaried employment, and different lenders may have significantly different criteria which they use to assess mortgage applications from contractors and self-employed applicants. However, with the right approach and planning, getting a first-time buyer mortgage as a contractor needn’t be any more complicated than for any other type of homebuyer; here are answers to a few of the question that you may have.
How do I find the right mortgage?
With an ever-increasing proportion of the UK workforce moving into contract work and self-employment, there are more lenders offering contractor mortgages now than there used to be, and some lenders have adjusted their assessment processes to more appropriately reflect the special nature of contractors’ employment and income. However, it’s still often the case that smaller, more specialist lenders tend to be more flexible in offering mortgages to contractor applicants, in comparison to some of the more mainstream high-street names.
At Just Mortgage Brokers we have a proven track record of helping contractors find the right lender and mortgage to match their circumstances – contact us to discuss how we can help you find the right contractor mortgage.
Will being a contractor work against me?
It’s true that lenders traditionally have been more likely to assist permanently employed applicants with an easily verifiable income and employer’s reference, than to contractors who may have a variable income that arguably makes it more difficult to calculate ability to afford a particular mortgage. However, some lenders now understand that contractors are in fact often likely to be high-earning professionals, and employ affordability assessment criteria that is designed to reflect that.
Providing you pass the lender’s affordability and credit checks, you’ll usually find that you will have access to similar or indeed the same interest rates and mortgage products as any other first-time buyer.
What documentation will I need?
This is a difficult one to answer, as different lenders may use different criteria to assess your ability to afford a mortgage; it may also vary depending on whether you perform your contract work on a self-employed basis, or via a limited company structure.
Depending on the lender, you may be asked to provide one or more of the following:
- Your business accounts (potentially up to three years’, but some lenders now require just one year’s accounts);
- Your SA302 year-end tax calculation from HMRC (again, anything from one to three years’ worth);
- A signed copy of your current work contract, showing the contract rate;
- Bank statements showing your income (typically three months’ worth);
- Personal ID and address verification (for example passport or other photo ID, and utility bills).
What about my credit history?
An assessment of the homebuyer’s creditworthiness forms a part of all mortgage applications, and this consists of two elements: credit scoring – where each item of information about the applicant such as age, job type, length of time at current address etc. is given a score – and credit checks performed with external credit reference agencies.
The three main UK credit reference agencies – Experian, Equifax and Callcredit – record details of any formal credit arrangements you have had, along with details of any arrears or missed payments, as well as more serious credit problems such as bankruptcy and County Court judgments (CCJs).
Remember that credit agreements can include accounts with businesses such as utility providers or mobile phone companies. It’s usually a good idea to get a copy of your own credit report before applying for a mortgage, so you can check in advance for any adverse records that might affect your application.