The problem contractors face with high street Mortgage Lenders
If you used your post-tax accounts to get your current mortgage, you may be paying more than you should. Especially if you're now on that lender's SVR. That's because you swapping contracts every 6 months and drawing a low 'salary' makes your application high risk.
In branch advisors' scant knowledge of specialist income poses its own problems. But add that to lenders' standard affordability formula, and the odds are really stacked against you.
Most contractors can afford more than most High Street lenders will offer to lend based on accounts. The difference our contractor mortgage partner can make is twofold; their:
- contractor-friendly lenders will offer you a remortgage based on your top line contract rate;
- underwriters understand contracting and don't see shorter-contract duration as such high risk.
You’re in control: you have options
Many contractors are so relieved to have got a mortgage at all, they don't like to rock the boat when their introductory fixed rate expires. That shouldn't be the case. All borrowers should look to reduce their (often) biggest monthly outgoing as and when it makes sense to do so.
Tumbling onto a lender's Standard Variable Rate is something many of us are guilty of. But paying the standard interest rate costs homeowners thousands of pounds over the course of their mortgage.
Lenders aren't obliged to tell you when they have a better deal on the table for you. It's up to you to see what you could save by remortgaging either to a new lender or new mortgage. Here's what you should be considering if you're paying a lender's SVR today.
*Lockdown limitations may affect remortgaging capacity
Remortgaging is one of the few ways you might improve your mortgage rate during lockdown. Deciding if a remortgage is right for you will depend on your current situation and whether:
- the rate you're on is competitive compared to new remortgage options;
- you've slipped onto the lender's SVR, or are still on a fixed rate;
- your fixed rate has a punitive early repayment fee;
- the lender you're with has dropped their tracker rate mortgage interest rates;
- the lender's perception of your risk profile satisfies their criteria;
- you're still working as a key worker, or plan to continue hereafter as a limited company or go PAYE.
At time of writing, lenders have withdrawn almost half of all residential mortgages. Between 11th March and 6th April, available mortgage products have plummeted from 5,239 to 2,768.
Of the lenders remaining, most demand sizable deposits, 40% or more. Buy-to-Let and remortgaging aren't as affected as new mortgages. With a remortgage especially, you don't have to leave your home for a viewing. In some instances, lenders can offer 'desktop' appraisals, but not always.
Cut to the chase: get a specialist broker on your case
At any other time, we would flesh out those bullet points above. But qualifying for a remortgage (or any mortgage) has never placed the borrower under such scrutiny. Those lenders still offering residential mortgages are underwriting on a case-by-case basis.
Now, more than ever, you need a mortgage broker with their finger on the mortgage industry pulse. Not only do you need current guidance, but also a broker with years of experience in contracting.
It doesn't matter if you've switched to PAYE or are sticking with your limited company structure. Freelancer Financials can appraise your situation, liaise with lenders and advise accordingly. When we're back to normal, we'll update these details to adhere to any new guidelines.