As a Contractor, being paid in a tax efficient manner, the mortgage market can be a confusing place. Various Lenders will request a huge variety of differing documentation as they try to shoehorn you into their standard criteria.
The reality, though, is that very few Contractors fit standard criteria, and the repercussions of being assessed on that basis can be a brick wall in the process of buying a house, or remortgaging.
Put simply, a true Contractor mortgage is one which is based upon your annualised day or hourly rate, rather than your company accounts or payslips, as is used in standard lending criteria.
The average Contractor is very unlikely to receive close to their full rate of pay as actual earnings, with the running costs of the company, or expenses to fulfil the contract, meaning that the actual personal earnings may bear almost no resemblance to your contracted rate.
When looking to obtain a mortgage, the difference can be large. If, for example you were a Limited Company contractor paying a tax efficient salary and dividends to yourself through the company, you may find that your personal taxable income is unlikely to exceed £50,000 in total, significantly less than the day rate upon which your company turnover is based, which can sometimes be two or three times as much.
Historically, Contractors have been looked upon as high-risk applicants, due to the short-term nature of any given contract. Requests to Banks often got swiftly rejected because of a lack of a permanent status being seen as less secure income.
Thankfully, through a Contractor specialist broker, there is the ability to be assessed based upon your potential income, via the gross value of your annualised contract. Using a Limited Company contractor as an example, the only person who decides how much of your turnover gets left within the company rather than drawn down as earnings, is you, the Contractor.
Banks are now coming round to the logic that the Contractor community have long since argued, with the fact that there is no permanent employment contract in place being viewed as a positive when looking at the feasibility of a mortgage.
With a higher gross income based on contract value than the vast majority of equivalent PAYE employed positions, and in most cases years of retained profits, or savings based, banks are now actually beginning to realise that in fact Contractors are lower risk than most.
This, coupled with having access to larger deposits than most employed applicants through retained profits and savings, now means that Contractors are able to get to the front of the queue with mortgage underwriters when approached in the right way.
At Cleerltwe have direct access to specialist underwriting teams within the main Contractor friendly brokers, meaning you are assessed fairly and accurately the first time. This means a vastly increased chance of mortgage approval, and often shorter timescales between application and mortgage offer.
To find out how much you could borrow based upon your contracting income, get in touch with us.