Mortgages for IT Contractors
For IT contractors and freelance professionals, finding a mortgage that makes financial sense can be a bit of a challenge. Traditional lenders are often averse to financing mortgages for IT freelancers, as they’re perceived to be a higher risk and a less secure investment. However, this clearly isn’t always correct and, fortunately, more and more lenders are coming to realise it.
CMME offer an alternative. Established in order to provide specialist expertise to independent professionals looking for fair and affordable mortgages, CMME have over a decade of experience getting IT contractors the deal they deserve. That’s why we’ve turned to them to produce this helpful guide to finding a mortgage as an independent professional in the IT sector.
1. What mortgage and why?
The first thing to think about when it comes to considering a contractor mortgage is what type of product you’re searching for and why. For many independent professionals taking out a mortgage is a fantastic opportunity to secure yourself on the property ladder and invest in a valuable asset that’s unlikely to depreciate.
Whether you’re buying your first home, a second under a buy to let mortgage, or hoping to grow your portfolio to include a number of rental properties, it’s important to understand the various products on offer and the ways each one benefits you. In this regard, it’s a good idea to discuss the matter with a specialist adviser.
2. Specialist knowledge is invaluable
As an IT contractor, it’s all too common to be given a bad deal or be turned down when applying for a mortgage. Even though you may earn more than those in traditional work arrangements, lenders don’t see past the current contract and worry unnecessarily about what comes after, punishing you unfairly as a result.
This means it’s necessary to shop around and do your research in order to get the best rate available for your circumstances. Though there are lenders with a more relaxed attitude towards the way they measure your income, they’ll often be the least competitive when it comes to interest rates. In order to find the best rate available, you will have to go through a specialist mortgage broker like CMME, as they’ve developed long-established working relationships with lenders and can bypass the front-of-house staff who aren’t authorised to offer the kinds of deal CMME can achieve.
3. Types of repayment
One of the key considerations when applying for any mortgage is what type of repayment plan you want to apply for. There are three main types of repayment plan, each with their own advantages and disadvantages. Here we give a brief overview of each option.
Repayment: Sometimes known as a capital and interest mortgage, this option involves paying back both the borrowed money and interest to the lender over an agreed period. This is advantageous because it ensures that your mortgage will be fully paid off at the end of the agreed period and that it is not dependent on anything other than your continued payment. However, repayment mortgages are sometimes perceived as inflexible, particularly if it’s a possibility that you’ll move house after a few years.
Interest only: On an interest only mortgage you pay the interest on the loan to the lender and contribute to a separate investment vehicle that can then be cashed in at a later date to repay the loan. This separate investment could take the form of an Individual Savings Account (ISA) or endowment plan. The main benefit of this type of mortgage is that your investment may earn over and above the value of your mortgage, meaning you’ve returned a profit or can pay off your mortgage sooner than expected. However, it can be difficult to find an interest only mortgage for a residential property and there is no guarantee that your mortgage will be fully repaid at the end of the payment period, as it is dependent on the performance of your investment.
Pension Mortgage: A pension mortgage is another investment-backed product. Borrowers invest their payments in a pension scheme and, when you retire, a lump sum is taken out of that scheme to repay the loan. This type of mortgage benefits from tax relief (as you’re investing in a pension) but, once again, is dependent on the performance of your investment.
4. What does a good lender look like?
There are a few important things to look out for when it comes to identifying a good lender. An important question to ask of any prospective lender is how often they recalculate the amount left outstanding on your mortgage. While you may make payments throughout the year, many lenders only recalculate the amount of your mortgage you’re paying interest on once a year. A good lender will recalculate weekly or even daily, rewarding you for regular repayments and saving you money in the process.
Take into consideration how well a lender communicates and how quick they are to process your enquiries and reply. A good lender is one that will stay helpful and communicative throughout the time it takes to repay your mortgage and that will respond to your application without delay. It’s often the case that a lender offers a fantastic deal on interest rates but isn’t able to process a client’s application quickly enough, resulting in them missing out on their dream home.
5. Take your time and shop around
Finally, it’s important that you take your time, shop around and don’t rush into things. Don’t apply until you’re absolutely sure about a lender, as each application requires a credit check. Each check is marked against your credit record and all other lenders can then see has taken place. Too much activity around your credit score and potential lenders can be put off.
Whether it’s a pushy estate agent piling on the pressure to buy immediately or a lender’s sales agent urging you to go for a particular mortgage product, it’s all too easy to be rushed into making a decision. Instead, take your time and make sure you’re doing the right thing. A good lender will still offer you the same or similar deal a few days later and there will always be another perfect property, so try not to succumb to pressure and give yourself time to think.
If you do require advice or the specialist expertise of a mortgage brokers that knows how to get a good deal for IT contractors, contact CMME by filling in the form here.
Need to include disclosure wording for CW as this article references investments and pension mortgages
ContractorUK are not authorised to offer regulated mortgage advice. ContractorUK are introducers to CMME.
Your home may be repossessed if you do not keep up repayments on your mortgage.
CMME is a trading name of CMME Mortgages and Protection Limited. Authorised and regulated by the Financial Conduct Authority (FCA reg. 414798). Registered in England No. 04886692. Registered Office: Albany House, 5 Omega Park, Alton, Hampshire, GU34 2QE. Please be aware that Commercial Mortgages, Overseas Mortgages and some Buy To Let Mortgages are not regulated by the Financial Conduct Authority. Calls may be recorded for training and security purposes and to improve the quality of our services.