Regardless of whether you are new to contracting or a seasoned pro, there always seems to be someone out there who has a long list of reasons why you just won’t be able to get a mortgage.
Cleerly has access to specialist lenders as well as the open market, and we’ve found mortgage underwriting has moved on significantly in the last few years. Of course, there may still be circumstances where funding does not get not approved, but more and more of our contractors can choose from competitive lending options for a new home, remortgage or secured loan.
Despite these changes, there are still plenty of naysayers and doom-mongers doing the rounds, so let’s look into the truth behind the top 5 contractor mortgage myths you are likely to come across…
Myth 1 – As a contractor you are deemed a higher risk and therefore charged a higher interest rate
Untrue. Provided your application is presented correctly, there are a number of high street lenders who are comfortable working with contractors. Once a lender has been sourced, the mortgage scheme and rate you would have access to is exactly the same as if you were permanent staff.
Myth 2 – As a contractor you will need to put down a bigger deposit
Untrue. Whilst putting down a larger deposit generally gives you access to lower rates, contractors are able to borrow with the same deposit levels as those in permanent employment. Most lenders will offer options with deposits as low as 5% but a discussion with a Broker is key to decide what is best for you.
Myth 3 – As a contractor you need to have at least 12 months contracting history and 3 months remaining on your current assignment
Untrue. There are options available from day one of your contracting career. Quite often sector experience is more important that how long you have been contracting. When it comes to term remaining on a contract, this could be a little as 1 month, but everything is assessed on a bespoke basis. We would always advise you engage with a specialist contractor broker as early in the process as possible to understand how your personal situation will be assessed.
Myth 4 – As a limited company contractor, you need to be able to demonstrate 3 years of company accounts to get a mortgage
Untrue. If a lender was assessing, you as self-employed then it would be highly likely that affordability would be assessed on your company accounts. Most lenders will look for a track record of 2-3 years and look at averages of your taxable income e.g. salary and dividends. A contractor friendly lender will be willing to look at your ability to service the mortgage debt based on the value of the contract being worked.
Myth 5 – Contractor mortgage applications take a lot longer
Untrue. The time taken for any mortgage application is based on two factors. How well the application is presented to the lender and the lenders turnaround times. A specialist broker such as Cleerly will ensure all the hard work is done before the application is sent to the lender. The correct lender will have been chosen, all the required documents would be gathered and pre-agreement would be gained before the application is submitted. We often find our applications are actually quicker than those who are permanently employed.