Contractors’ Questions: Which lender’s best for adding a permie to my mortgage?
Contractor’s Question: Will a mortgage holder’s current lender always beat the other deals on the high street, when the borrower is looking to add a permie to their mortgage? Or, as the borrower is a limited company owner, would they and the permie be offered a bigger multiple if they chose one of the specialist contractor lenders? If I (the borrower) do have to explore the high street from scratch, how do I convince my current lender to give the permie and I the biggest multiple possible? I’m currently getting a multiplier of 3.5 but would the existing lender likely increase that if I could secure 4 or 4.5 from one of its rivals?
Expert’s Answer: Your existing lender will seldom offer the most competitive deal. Moreover, since the introduction of the Mortgage Market Review (MMR) in April 2014, they’ll also be required to carry out a full affordability assessment prior to making any material change to your loan. So a seemingly simple application to add a second borrower will require broadly the same documentation for both you and your partner and takes roughly as long as an application to a new lender.
With ever increasing competition in the mortgage market, shopping around for the best deal could save you thousands of pounds. This size of saving is even more likely if you opt for a fixed-rate mortgage now, as that could ride out the potential interest rate rises that are widely predicted to happen in 2015.
As regards your other concerns, lenders’ income multiples are usually set in stone. However using a contractor-friendly lender will increase your borrowing capacity significantly when compared to just making an application based on your limited company accounts. This is because the contractor-friendly lender will work from your gross annualised contract rate, a significantly higher figure than your salary and dividends, meaning that when they apply the same multiple, the resulting maximum lend is much higher.
When you apply for a joint mortgage, the income multiple is normally around 3.5% whereas applying for a loan on your own means that you can access income multiples of up to five times your contract rate. An Independent Financial Adviser will be able to do the sums for you and advise whether you would be able to borrow more applying on your own or with your permie partner, but you will almost certainly be surprised by how much you can borrow on a specialist contract rate-based mortgage, rather than a traditional accounts-based product.
The good news is that most lenders will cover your legal and valuation fees when you remortgage so it could cost less than you think to switch lenders. Coupled with the potential for lower rates, this means that it’s certainly worth shopping around for a better deal. Given your contractor status though, you should strongly consider a specialist broker who will have access to contract-based underwriting with high street banks and building societies that may not be accessible through their branch network if you try to apply direct. But do make sure you check upfront if your broker is going to charge you a fee for their advice, as some charges can be more than £500 just for the privilege of working with them! Remember, there are plenty advisers who don’t charge any fee whatsoever for their help and expertise so it really can pay to ask the question. Good luck!
The expert was Tony Harris, founder and managing director of ContractorMoney, an IFA to umbrella and limited company contractors.