Contractor Mortgages FAQ
Go to any freelance contractor forum or speak to any other contractor and they’ll have different opinions and experiences on what it’s like applying for a mortgage loan as a contractor or freelance worker. So we thought it would be a good idea to straighten out the facts about contractor mortgages.
Check out our contractor mortgage frequently asked questions below and make use of the “contractor mortgage calculator” to find out how much you can borrow.
Does the end of Self-Cert mean that I can’t get a mortgage as a contractor?
Many mortgage brokers who are unfamiliar with the contracting market have been recommending Self Cert mortgages to contractors for years, but at Freelancer Financials we’ve been securing competitive prime rate mortgages for contractors based on their “contract rate alone” for many years.
As a contractor you should not have to settle for Self Cert mortgage with expensive fees and high interest rates. Avoid mortgage advisers and high street lenders who are not prepared to assess you on your annualised contract rate.
Why is Freelancer Financials different to other mortgage brokers?
Unlike other mortgage brokers we specialise in providing mortgages for freelancers and contractors. Many contractors come to us because they have been let down by general mortgage advisers who have no experience in presenting mortgage applications for contractors. In some cases they have obtained a “decision in principle” paid the valuation fee, only to find out that their application is declined once it has been assessed by an underwriter. Many of our clients are introduced to us by freelancers and contractors that have had the benefit of our specialist service.
How much will I be able to borrow?
Freelancer Financials have arrangements in place with lenders that will use their standard multiple of income on your current annualised contract rate to calculate a maximum loan amount. We are able to secure a mortgage loan of up to 4.5 times your annualised contract rate. Enter your details into our contractor mortgage calculator to find out how much you can borrow. Essentially, the success of your mortgage depends on how well your application is presented to key decision makers. We ensure that your application is correctly packaged and directed to senior underwriters who have an understanding of your contractor status and earning potential.
Are interest rates much higher for contractors?
Certainly not – this is pure myth. At Freelancer Financials we can arrange mortgages for contractors at competitive interest rates that are no different to the mortgages being offered to people in permanent employment.
Is it possible to get an “agreement in principle” before making an offer?
We can obtain an “agreement in principle” based on your contract rate or net profits, however it is important that you do not confuse this with a “mortgage offer”. An “agreement in principle” is a certificate of credit check that states you have passed the lenders credit assessment. In a way this is an endorsement which puts you in a position of strength when negotiating with a seller or estate agent
Will I be charged a higher interest rate as a contractor?
Not if we can help it! Over the years we have patiently developed relationships with leading high street lenders and financial institutions in relation to simplifying what qualifies as relevant earnings for lending purposes for contractors. We have been able to negotiate the same “best buy” rates that are available to permies. You can now choose from a range of low interest rate products ranging from fix rates, discount rates, tracker rates and flexible offset mortgages.
How much deposit do I need?
Depending on the amount of deposit you are willing to put down the mortgage interest rate will differ. As you are probably aware, the larger the deposit you put down the lower the interest rate you receive. A deposit of 15% will secure you a reasonable rate with a wide range of lenders although 10% deposits are acceptable these rates will be charged at higher rates.
I have just started contracting?
At Freelancer Financials we can arrange a mortgage for you with a reputable high street lender on the day you commence your first contract.
How long do I need to have remaining on my contract?
In general most lenders will require 4 to 6 weeks remaining on your contract although we can often negotiate on this and with some help from your agency ‘talk up’ your prospects of a renewal/extension contract for mortgage purposes.
How long will it take to complete my mortgage?
All lenders are different and it also depends on whether there is a back-log of applications due to a promotion or preferential rate. Obtaining an “agreement in principle” only takes an hour from receiving your mortgage application. Once the valuation of the property has been received by the bank and the necessary legal searches performed by your solicitor the whole mortgage process generally takes 4-5 weeks maximum.
What supporting documentation will I need to provide?
The following documents will be required to package your mortgage application to the underwriters:
- Proof of ID (a copy of a passport or driving license will do fine)
- Proof of address (utility bill, credit card or bank statement)
- A copy of your latest contract, confirming your contract rate
- A copy of your latest CV may be requested
- Bank statements confirming contract earnings
Will I need to provide accounts?
You won’t need to rely on the traditional method of using 2-3 years accounts, which for most contractors does not fully reflect the total earnings that you have at your disposal for income verification. It is far better to simply work from your contract rate alone.
What will my upfront costs be?
For remortgages, most of the lenders that we deal with cover the cost of the valuation and legal fees, and in some cases arrangement fees. For home movers and first time buyers the majority of lenders charge a valuation and arrangement fee to book a particular mortgage deal. Quite often we can secure mortgage products where the banks will pay some or all of these fees for you as an incentive.
What about stamp duty?
| The amount charged depends on the purchase price of the property. The latest rates for UK Stamp Duty are as follows: | ||
| Purchase price | Rate | First-Time Buyers |
| Up to £150,000 | Zero | Zero |
| Over £150,000 to £250,000 | 1% | Zero |
| Over £250,000 to £500,000 | 3% | 3% |
| Over £500,000 | 4% | 4% |
| Over £1,000,000 | 5% | 5% |
Will I have to accept costly extended tie-in charges to secure a mortgage?
A number of mortgage schemes feature attractive initial interest rates for the first 12 months and then jump to higher rates for a further two years with penalties charged if you move to another lender. We have always steered clear of these types of mortgage schemes. We can recommend a wide range of competitive mortgage deals that give you total flexibility to move your mortgage loan at any time or when your special rate expires.
What happens to my mortgage rate after the initial rate expires.
Unless you’re on a life time tracker rate, your initial mortgage rate will revert to the lenders standard variable rate. Too often people become complacent and allow the new reversionary rate to set in once the initial rate expires. The good news is that we contact all our clients at least 8 weeks before the expiry of any preferential rate, to examine all available options. We check what the retention rates are from the existing lender and compare them with what the remortgage rates are from different lenders. On many occasions we can transfer you to a new competitive mortgage rate with the current lender you are with. However, if there are better mortgage rates available from other lenders, it makes sense to transfer your mortgage loan to a more competitive mortgage scheme. We can often arrange with these lenders to pay for all fees to move your loan across to their mortgage scheme. This typically includes the cost of the valuation and legal fees.
At Freelancer Financials, we are always keeping an eye on market conditions and interest rate trends to ensure that you always secure competitive interest rates throughout the life of your mortgage.
Is it compulsory to take the lenders insurance with my mortgage?
Our mortgage advisers will always try and ensure that there are no hidden surprises or charges when making our mortgage recommendation to you. We will always exclude mortgage schemes from our proposals that insist on you taking out the lenders uncompetitive home insurance etc. This also includes banks that stipulate that you have to take their life insurance and protection cover. As responsible financial advisers we encourage you to consider life, critical illness and income protection cover, as it is important to ensure that your mortgage loan is adequately protected. On request our protection specialist would be happy to provide a no obligation quote and advice on your protection needs.
Why a Contractor Mortgage Specialist
A contractor mortgage specialist will be able to access the whole of the market to find the best rates available based on your contract rate alone. Contractor mortgages are now available from a number of contractor friendly lenders that have agreed bespoke underwriting based on your contract rate alone.
What do I do next?
Complete the form here and one of our mortgage advisors will contact you by email with recommendations and mortgage options tailored to your requirements.
Freelancer Financials are specialists in the field of providing mortgage advice for contractors and freelancers. For a mortgage quote please contact our contractor mortgage specialist on 020 8421 7999
