Mortgages fall behind as stubbornly high interest rates hit household finances
A question that most people ask when they engage with us here at Cleerly is ‘what rates will I get as a contractor?’. Today, I want to outline exactly what a ‘contractor mortgage’ is and how it differs from any other on the high street.
First, it’s important to note that we work across the market and can access any lender who is open to brokers. From banking giants to specialist lenders who are unknown to the wider population, we are not restricted on who we can approach.
That said, the key to any mortgage approval lies in the lender criteria. There are two main aspects that are assessed in order to approve a mortgage, the property – by way of a valuation or survey – and the applicant – by way of a credit score and verification of circumstances.
It’s this last point that is key if you’re a contractor as lenders will assess your income and need to satisfy themselves that it’s stable and consistent enough for you to be able to afford the mortgage.
If you went to a bank directly, the chances are that they will not understand contracting. Banks tend to see income as either employed or self-employed, not appreciating that contracting straddles the two – whether you are inside or outside IR35.
If you’re inside, and working via an umbrella company, banks would potentially ignore a large part of your income when looking at payslips, as they see any element classed as either bonus, commission or holiday pay as non-guaranteed. This will almost certainly lead to a mortgage potential far lower than anticipated and can mean you’re unable to borrow the amount required.
If you operating via a Limited Company, lenders will try to shoe-horn you into their self-employed criteria, meaning that they will ask for several years of trading accounts and then look to lend against an average of your personal drawings from the business over that time, meaning that not only are you limited if you’re operating in a tax-efficient way, but also if you’ve not got at least two years’ trading history, you’re unlikely to succeed.
We have key relationships, built up over 15 years in the industry, with dedicated underwriters at the same lenders, meaning that we can get each case looked at on it’s own merits, and explain the income structure in ‘real terms’ to enable you to get the borrowing that you need.
Using this bespoke underwriting, we’re able to assess income from an annualised calculation of your contract rate, unlocking the borrowing potential that you should have had.
It’s this access to the lending, rather than the cost of lending via interest rates, that differs. Crucially, these lenders offer the same interest rates regardless of employment status, but by using our bespoke underwriting you can be safe in the knowledge that you will not be penalised for working in a more flexible way.
So, in simple terms, the answer to the original question is that you’ll get the same rates as any other applicant, providing the approval process is handled correctly. A declined application, however, can be a significant challenge to overcome. Contact us today to see how we can help you.
About Cleerly
Our mission to make mortgages more affordable and accessible to contractors, locums and professionals with complex incomes, and we have been instrumental in changing the parameters of the mortgage market for professionals. We push boundaries to make the market more competitive and pass on the benefits to our clients.
Contact our contractor mortgage and independent professional specialist advisers on 02394 212 912.