Guide to Getting a Competitive Contractor Mortgage
Getting a competitive mortgage deal as an independent contractor or freelancer isn't easy. Advisors can struggle to interpret your limited company income, often trying to use accounts to do so.
Through Freelancer Financials, you'll get a bespoke service that uses your contract rate, not accounts, to secure your interest rate. Having dealt with contractor-friendly lenders since 2005, John Yerou and his team can help you find the contractor mortgage your income and status deserve.
Rather than go through the branch network, John's team deal with specialist underwriters direct. This circumnavigates the often-inflexible lending criteria that High Street lenders tailor to permanent employees.
These underwriters understand that independent professionals are no more high-risk borrowers than PAYE employees. Whether it's a residential or buy-to-let property you're looking for, you'll have a fair hearing.
On that note, a little preparation on your part goes a long way. To understand the kind of borrower you are and the hurdles you'll face, John has created this quick guide for you.
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1. Proving income
If your payment structure is an umbrella company or limited company, accounts aren't the best way to prove your income. The lenders with whom we deal know that your top line contract rate is the most relevant figure in their calculation. They then 'annualise' your day rate (before tax) and use that figure as a salary equivalent.
So, a copy of your current contract rate is mandatory. If you only have a short time left to run, you may need to get a contract extension. You'll also need an up-to-date CV. This will prove to the lender that you're suited to the industry you're working in at time of application. A solid work history in a buoyant industry will help reduce risk. The lower the assigned risk, the lower the interest rate you're likely to finally pay.
If you'd prefer to use accounts, you could go the company director or sole trader route. Providing you have decent trading history and have kept good accounts, we have lenders who'll accommodate you, too. In general, you'll also need proof of ID (passport, driver's licence, utility bill) and 3-months' bank statements. Some lenders may ask for more or less, depending on your borrower profile.
2. You, the borrower
Before you even begin the process, understand one thing: as a contractor, you're a specialist borrower. Not knowing this has caused many independent professionals to fall at the first hurdle on the High Street.
We'll package your application so that our underwriters can quickly find what they need to approve your mortgage. Being a first-time buyer, second stepper or you're looking to remortgage may have a bearing on what is and isn't relevant.
Our expert advisors—all of whom have gone through the self-employed process themselves—can walk you through that part. By getting to know you, we'll give you the greatest chance of application success.
3. Which mortgage?
Lenders offer many types of mortgage: fixed-, tracker-, variable- and capped rate home loans. Then there's capital and interest (repayment), interest only, buy-to-let and offset mortgages to consider, too. Today, many lenders offer all their types of mortgage to all contractors, so which is right for you?
Our advisors will talk you through the pros and cons of each in relation to what you want to achieve. Do you want a forever home, a first step or rental property? Where are you in relation to your career and aspirations? By taking the personal, 1-to-1 approach, we'll help you decide which mortgage best matches your ambitions.
There are always other costs involved in buying a house. You need to understand them all to work out what you need to put by. Again, we'll help you with the exact figures, but please be aware of these factors:
- Arrangement fees cover creating your mortgage account, and (often) the long-term admin thereof;
- Valuation fees cover the valuation of your new home to ensure the collateral is worth what you're borrowing;
- Legal fees are what the solicitor or conveyancer will charge you for the essential legal work they undertake;
- Surveyor's fee may be part of the legal fees, but be sure they're covered if you're buying a rental property;
- Stamp duty is SDLT, the Stamp Duty Land Tax, that you pay to HMRC on all residential properties over a certain price (currently >£125,000);
- Broker fees are what the mortgage broker charges for arranging your mortgage.
5. Why do I need a broker?
Remember that word, "specialist"? You're a specialist borrower who needs a specialist broker to access a specialist underwriter. Your income is not standard; unfortunately, banks don't yet train all of their front desk advisors in niche lending. Specialist brokers like Freelancer Financials exist for borrowers like you.
Our advisors talk to specialist lenders—and High Street lenders—all the time. On any given day, we know which lenders are offering what deals and to whom. We're in this position because, in many cases, we've helped banks develop their contractor mortgage lending criteria.
It's a trust that works both ways. When they get an application from us, they know we've asked the right questions. That means they can process the application with precision and speed. A typical mortgage through us takes no longer than four-six weeks, often completing sooner. This puts us in a position to offer the most competitive deals to contractors, even exclusive mortgage rates you'll find nowhere else.
So, yes: you'll pay a broker's fee. But the difference in the amount you can borrow and the lower mortgage rates/repayments often sees contractors recouping that outlay in no time. Alternatively, you can use the High Street network. But because we're a family-owned independent broker, they won't offer you the choice or value that we will.