Concerned about the recent news headlines on “Self-Cert” mortgages and tightening lending criteria for self-employed workers? Don’t be, we’re happy to say that all is not lost.
Even in these difficult financial times securing a mortgage does not need to be an issue for a Contractor but the key is to ensure that the loan application is properly packaged and falls in front of the right decision makers within the lending institutions.
Over the past few years we have developed relationships with leading high street lenders and financial institutions in relation to simplifying what qualifies as relevant earnings for lending purposes for freelancers. I believe we have been very instrumental in changing the assessment criteria for contractors and freelance workers. This has lead to the introduction of contractor mortgages by a number of specialist contractor mortgage brokers.
Without a specialist contractor mortgage broker:
Lenders and financial institutions penalise contractors when sourcing a mortgage. This is because most lenders have a simplistic view of what qualifies as relevant earnings for lending purposes. They also have a bias towards permanent employment as they view this type of borrower as less of a risk.
What invariably happens is that a contractor explains who they are, and what they do. The ‘customer services representative’ then struggles to understand your employment status and might even put you down as a part-time worker, after which they explain that since the contractor does not have a full-time job, the bank won’t consider the mortgage. It doesn’t matter that the contractor has a very impressive income level, and contract to prove that income. Nor does it matter that the contractor has a perfectly clean credit record. It’s like talking to a brick wall. Does this sound familiar?
Let’s say you are one of the lucky contractors that find a customer representative that agrees to assess you as a “self-employed” worker with a limited company. You will typically be assessed on salary and dividend drawings. For tax reasons, many contractors working through a limited company will draw a minimum salary and also restrict dividend payments to avoid higher rate tax. Although this is a perfectly reasonable tax planning strategy it also has the unintended consequence of reducing the amount a contractor is eligible to borrow under the standard criteria used by most mortgage lenders.
However, it is only fair to point out that there are a few high street lenders out there that are willing to apply their standard multiple of income to the contractor’s limited company net profits to come up with a loan size. But they are likely also to ask for 2-3 years accounts.
With a specialist contractor mortgage broker:
In contrast, a specialist contractor mortgage broker will make use of contacts developed with lenders and mortgage networks to present the contractors application directly to senior underwriters so that the full earnings potential is taken into account – including earnings which are not paid out but retained within the company for tax planning purposes. Furthermore, a number of these high street banks will also consider just 1-years accounts.
We also have arrangements centrally agreed with a number of high street lenders that will annualise your current contract rate and then apply their standard multiple of income to come up with a maximum loan size. The key here is to ensure that the application is properly packaged and placed in front of the right decision makers rather than using staff in branch networks. It is essential to bear in mind that a direct approach to a lender can often shut what could be an open avenue to a mortgage offer.
This means that you don’t have to rely on the traditional method of using accounts, which may not fully reflect the total earnings that you have at your disposal, for income verification on a mortgage application.
Many contractors have also been let down by non-specialist brokers who have approached the wrong lender or poorly packaged the application. Each failed application leaves a footprint on an applicant’s credit record, this makes the next application more difficult and it is therefore essential to get it right from the start.
Choosing a good mortgage broker is essential in today’s current financial climate. A specialist contractor mortgage adviser can save you the hassle of dealing with high street lenders who are unfamiliar with the contracting market. This is increasingly important in the current financial climate as lenders are tightening lending criteria and this trend is predicted to continue with the scheduled introduction of increased regulation.
