Getting a Mortgage as a Contractor

With over 4 million people now self-employed in the UK, demand for contractor mortgages is on the rise – though despite this, the criteria of many mortgage lenders when assessing your income is still somewhat draconian.

The process of buying a house can be difficult enough, so let’s walk through everything you need to know to about securing a mortgage as a contractor. First things first…

Can I get a mortgage as a contractor?

Absolutely! Whether you’re a first-time buyer or re-mortgaging, there are plenty of mortgage deals out there. The process may be slightly different, but the goal is the same. Your options are to approach lenders directly, or perhaps more favourable; would be via a specialist contractor mortgage broker.

Why are contractor mortgages different to ‘normal’ mortgages?

Mortgage applications for contractors can be a little more complicated than for those on a payroll due to the uncertain nature of their income. Walk into a bank on the High Street and it’s likely they will ask for the last few years’ trading accounts for your Limited Company, and then base lending on your personal drawings, which can be hugely unfair.

As a contractor, with some efficient tax planning you may have significant reserves left in your business account. If you can pay yourself any amount of this as needed, why should lenders penalize you for keeping this in the business rather than taking it as income and being taxed accordingly? This is where a specialist contractor mortgage broker comes in.

Will I get less competitive rates as a contractor?

Not necessarily. The best rates are usually available with a higher deposit although with a good credit rating there are still some good deals available. Speaking with a broker will ensure you get the best rate available to you.

Why should I use a mortgage broker?

We partner with some of the best in the business and our mortgage partners are no different. Professional Contractor Mortgages (PCM) have a wealth of experience, and with bespoke underwriting agreements with the major banks and building societies, they can achieve mortgage lending based upon your contract rate, rather than just your taxable income, unlocking potentially hundreds of thousands of pounds worth of funding that would otherwise not be available.

Using an experienced broker ensures that you approach the right lender the first time – this is a particularly important point considering that one of the big knock-on effects of the discrimination against contractors in the mortgage world is that an application incorrectly assessed could mean a decline – subsequently, a declined mortgage application makes it even more difficult to gain acceptance with the correct lender.

What is the process of applying for a mortgage via a broker?

Here, our partners Professional Contract Mortgages (PCM) have broken down their mortgage application process into the following steps:

• Step 1 – Contact PCM for a no-obligation consultation to establish lending options based on your contract income. You will be asked in detail about your personal situation, your credit situation, and your work.
• Step 2 – Provide PCM with any information required to liaise with mortgage underwriters on your behalf, typically your current contract and a copy of your CV.
• Step 3 – Your PCM consultant will call you within two working days of receiving the documentation to feedback what the options are, helping you to be as best prepared as possible when viewing houses.
• Step 4 – Find a house!
• Step 5 – When you’ve had an offer accepted and need to get the ball rolling on your mortgage application, your PCM consultant will outline all documentation that the lender will require – this may differ depending on the lender, how long you have been contracting and how you receive your income. Upon receipt of this, your mortgage application will be formally submitted. Your consultant will be happy to liaise where necessary with estate agents to reassure them and keep them updated on timescales for mortgage approval/valuation booking.
• Step 6 – The mortgage lender will begin to underwrite the application, and instruct the valuation, meaning the estate agent will get a call to book this in.
• Step 7 – Once the valuation is complete and the lender has finished their underwriting, they will look to approve the mortgage, and issue a mortgage offer. Typically, the mortgage market has an average timescale of between 4 and 6 weeks from mortgage application to mortgage offer, however, there are many variables here and the extensive pre-application work that PCM do for you often reduces this timescale. Your consultant will give you a good idea on processing timescales at the point of application.
• Step 8 – Exchange and Completion – you get the keys to your new home!

If you would like more information about contractor mortgages, PCM are on hand and happy to help, get in touch today.