Put simply, a contractor mortgage is a mortgage that is assessed differently to a standard PAYE “permie” or self-employed application.
Most lenders will want to pigeonhole you into either a permanent member of staff or self-employed. This typically causes problems as income cannot always be evidenced due to your umbrella company payslips or lack of taxable income on company accounts.
A contractor mortgage will allow the lender to assess your ability to service the loan based on your contract day rate.
How your income is calculated: contract day rate vs. salary and dividends
The way in which you are presented to a lender could be the difference between you being able to buy your dream home and being left to “make do”.
Let’s say you are an IT contractor, working outside IR35 through your own limited company on a £600 per day contract. You approach a standard mortgage broker who advises you need to demonstrate 3 years accounts and the lender is prepared to assess your income based on the £12,000 salary and £40,000 dividends you have drawn on average over the past 3 years. This allows you income to be assessed at £52,000.
A contractor lender would potentially assess your income based on £600 per day x 5 days x 46/48 weeks allowing your income to be declared at £138,000.
Why should I use a contractor mortgage specialist?
As a contractor, your end client has decided to utilise your services because you are an expert in your field. The same applies with a contractor mortgage specialist:
- They understand you
- They have years of experience in the contractor mortgage market
- They know how to structure your application to maximise your borrowing potential
- They know how to get you the best rate available based on your situation
- They know what the lender will require to accept your particular situation
The team at Cleerly have been serving the UK contractor market for over a decade. During this time, not only have they built up a wealth of knowledge on all things contractor, they also have relationships in place with key decision makers to ensure your case is assessed correctly by the lenders.
What documents will I be asked to provide to support the application?
Whilst it is impossible to confirm exactly what documents will be required until a full fact find has been undertaken, lenders will often be looking for the following:
- Proof of identity and proof of address for all applicants
- Up to date CV – This will allow the lender to understand your career history, skills and qualifications
- Up to date contract – A full contract will be required as a minimum including the full T&C’s showing your end client, start date, end date, contract rate and you as the preferred supplier/contractor
- 3 months business bank statements – if you are working outside IR35 via you own limited company, lenders will often ask for 3 months statements to show contract income regularly crediting into your account
- 3 months personal bank statements – This allows the lender to understand how you manage your finances and check for late/missed direct debits and use of overdrafts
- 3 months payslips – if working via an umbrella, the lender will require your payslips to understand and assess any regular deductions
Other documents could also include:
- Proof of visa status
- Proof of deposit
- Proof of consent to let on any investment properties
- 2 years previous contracts
Don’t be alarmed if you can’t provide any of these documents as different lenders require different documents. A specialist consultant will factor in your concerns and advise you accordingly.
Why Cleerly?
At Cleerly, we specialise in finding the best mortgage options for contractors and freelancers. This is because we understand how both contracting and underwriting for mortgages work. With this understanding, we can advise you on the best course of action.
Check out our reviews in trustpilot or our Google reviews to see what our clients think of the service provided.
We have extensive experience in the industry and strong relationships with specialised Contractor Mortgage providers who will look at your unique circumstances instead of trying to fit you in a mould. As a result, we can help you find a lender when you might have been turned away from everywhere else.
In fact, our director has been pivotal in shaping contractor lender criteria over the past 14 years.
So what next?
It’s important you engage with a specialist as early in the process as possible. Even in the unlikely event we can’t find you a solution, the team will work with you to ensure the right steps are taken to allow you to move forward at the earliest opportunity.