Everyone seems to be an expert on the contractor mortgage market. Jump onto the forums and you’ll find people commenting on everything from “self-certification” to “sub-prime” mortgages. This information can be confusing and may not be accurate and so many contractors have told us about their colleagues’ mortgage horror stories.
Don’t always believe what you read on the internet. Speak to a specialist with experience in the contractor mortgage market. Now read about our top 7 contractor mortgage myths.
1 Contractors need to have at least 3 years of accounts to get a mortgage
Wrong. Contractors can get a mortgage based on their day rate. You don’t necessary need those elusive 3 years accounts that you’ve heard about. Working with contractor friendly lenders means that we may be able to arrange a mortgage based on your current contract, rather than the number of years you have been working as contractor.
2 Contractors must have been contracting for at least six monthsIncorrect. Contractor friendly lenders can help even if you have only just taken the jump from a permanent position and have been contracting for as little as one day.
3 Contractors are labelled as high risk by banks and building societies when it comes to getting a mortgage
Untrue. Mortgage lenders who understand contractors and freelancers will not necessary see you as any more high risk than a full time employee. You may be able to borrow around 5 times your day rate. If you have a poor credit rating and no deposit then absolutely – you could be a liability to them. But that would apply to an applicant in permanent employment too.
4 Contractors need a mortgage deposit of at least 50%
Nonsense. At the moment you would need at least 5% of a property’s value to get a mortgage. Obviously having a larger deposit will mean you represent less of a risk for mortgage lenders and as a result they will generally offer you more competitive mortgage deals with lower interest rates – but it’s definitely not mandatory to have at least a 50% deposit.
5 Lenders will always charge contractors a higher mortgage rate than permanent employees
Nope. Contractors will generally be offered the same interest rates as permanent staff. With higher daily rates compared to employed colleagues, you may even receive lower mortgage rates because you may be in a better position to put more savings aside which will provide a larger deposit.
6 Contractors must have self-certification to get a mortgage
No, no, no! Self-certification mortgages are something of the past. They were originally aimed at the self-employed and contractors who had trouble proving their income to secure mortgage borrowing from their bank. The FCA put an end to these types of mortgages back in 20091. Now, with many contractor friendly lenders and specialists available who understand your financial status – there is no need for the “self-certification” mortgages of the past.
7 Contractors need to jump through more referencing loops for a mortgage
Wrong again. You do not necessarily need references to get a mortgage. As long as you have the 5 essential documents you need to arrange a contractor mortgage and you speak to a contractor specialist who knows the criteria applied by contractor friendly lenders, your mortgage can be processed speedily.
At The Contractor Mortgage Company, we specialise in contractor mortgages. Our team understands the financial status of contractors and work alongside head office underwriters who are contractor friendly so we always find our clients the mortgage they need.