If you are approaching a bank or a non-specialist broker directly, the answer to that question may unfortunately be, "with great difficulty". Contractors have asked many questions about mortgage funding over the years but it usually boils down to just one:
How can I get a mortgage as a contractor?
Ever since self-certified mortgages were disallowed at the start of the credit crunch, contractors have been trying to find a straightforward route to mortgage funding.
Most lenders fail to recognise that contractors can prove less of a risk than permanent workers. This is because many contractors have a higher income and possess a wider, more marketable skill set that can help them continually secure work enabling them to keep up their mortgage repayments without any problems when their current contract comes to an end.
When a borrower approaches a lender, they will ideally neatly fit into one of their standard categories - employed or self-employed. A limited company director is self-employed and the umbrella company would be employed. Anyone using one of many creative offshore mechanisms is at the mercy of the bank as to which category they would fall into. So, if you know this will be the approach that lenders will take, what’s the problem? Surely you can simply prepare pay-slips or trading accounts accordingly?
There are, however, sub-categories which entail a more detailed criteria and assumptions regarding taxable income and that will be just the tip of a complicated iceberg with any one lender. Different lenders take different views regarding risk. Unless you are a permanent employee, or self-employed under your own name with a long track record and history of paying tax, lenders can usually find a reason to say “No”. The “No” usually acts as a request for further information. Examples would be, “Please supply your last two P60s”, or “Please supply the latest 3 years’ SA302s”.
Those contractors who are lucky enough to successfully obtain a mortgage approval after approaching a lender directly will often find that they cannot borrow an amount based on their full contractor earnings, again due to the conventional income verification procedures being applied.
Worse still, those contractors who have been declined a mortgage having approached a lender directly may find it even more difficult to go on to secure mortgage borrowing elsewhere.
The Contractor Mortgage Company
A company that really knows the contractor mortgage landscape can help. The right firm will avoid the need for providing irrelevant HMRC documents by presenting the case in the correct manner – you, the applicant, are a professional contractor who is eligible for bespoke underwriting for a mortgage rather than being treated as a limited company director or employee.
Getting lenders to understand the risk profile of a contractor is not something you can insist or rely on. A heightened understanding of, and a more relevant risk assessment for contractors comes through ongoing negotiation and experience of dealing with large volumes of mortgage applications from contractors over a long period of time. Developments in tax legislation and the resulting complexity of certain umbrella mechanisms mean that the contractor mortgage landscape is continually changing. That’s where The Contractor Mortgage Company comes in.
When a mortgage application is presented by a specialist broker, lenders come to understand the typical contractor client scenario differently. They realise the niche skills of a potential borrower who is a contractor mean that there will be a steady flow of contract income, with minimal enforced periods out of work.
They understand the calibre of the end client who is using the services of the specialist broker. They also appreciate that, historically, lending arranged through a contractor mortgage broker has a very low default rate. They know verification of affordability has been carried out diligently. Because of these factors, lenders like working with this type of broker and it is the contractor who stands to benefit from this familiarity.
When looking at contractor mortgages it is also important to note that not all lenders offer specific contractor mortgages and many still take the conventional route in assessing your income.
So, coming back to that first question, “can contractors get mortgages?”, the answer is most definitely “yes” - with a little bit of help.