Umbrella Mortgages for Temporary & Agency Contractor Workers

Umbrella contract arrangements can complicate mortgage applications. It's crucial to apply through an experienced broker like Cleerly who works with lenders familiar with this employment structure.

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Can you get a mortgage as an agency worker paid via an Umbrella payroll?

Many contractors and agency staff now operate through umbrella companies, a trend that has grown since the IR35 rules on 'off-payroll' workers were implemented in April 2021.

This arrangement can complicate mortgage applications. It's crucial to apply through an experienced broker like Cleerly who works with lenders familiar with this employment structure.

The good news is that being an agency worker or temporary contractor under an umbrella company doesn't make securing a mortgage impossible, though it may limit your options for potential lenders.

Challenges and Solutions

Many lenders won't accept applications from contractors and agency workers using umbrella companies. Those that do will evaluate your case individually, often involving complex affordability assessments and terms. Therefore, consulting with an experienced umbrella mortgage specialist can be highly beneficial.

However, even if you're facing challenges, there are ways to navigate the process effectively:

  • Show Consistent Income: If you can demonstrate a consistent income stream, it will strengthen your application.
  • Fixed-Term Contracts: Having a fixed-term contract can significantly smooth the mortgage process.
  • Work with Knowledgeable Brokers: Even without a fixed contract, brokers with expertise in this field can introduce you to lenders who understand your situation.

Expertise You Can Trust

Cleerly have more than 20 years' specialist experience in serving the needs of contractors, the self-employed, and independent professionals. They understand the intricacies of the mortgage landscape for those working under umbrella companies and can offer tailored advice to increase your chances of approval.

By leveraging their expertise, you're more likely to find a lender who appreciates your unique employment circumstances and can offer a mortgage product that suits your needs.

Call us today on 02394 212 912 or complete an online quote.

Mortgage availability for different types of Umbrella contractors

What Are the Benefits of Applying for a Mortgage as an Umbrella Contractor?

Working through an umbrella company can simplify the process of securing a mortgage compared to other contractor or self-employed arrangements. Here's how:

  • Focus on Contract Value: Instead of relying on variable payslips, lenders assess the overall value of your contract. This method works in your favour, particularly if you earn extra through overtime or bonuses. It helps create a smoother application process.
  • Consistent Earnings Record: Umbrella companies provide a clear history of regular income, which means you don't need to supply tax returns or accounts like self-employed applicants often must. This makes proving your earnings straightforward.
  • Flexibility for New Roles: Even if you're new to a position, you can use your contract as proof of stable employment through the umbrella company. This gives added flexibility compared to some other employment types.
  • Higher Borrowing Potential: Mortgage affordability is based on the value of your contract rather than the net profit figures used in self-employed tax returns. This can allow you to borrow more than a typical self-employed applicant.

If you're employed through an umbrella company, these advantages can make getting a mortgage more manageable and potentially offer better borrowing outcomes.

What Are the Disadvantages of Applying for a Mortgage as an Umbrella Contractor?

While securing a mortgage as an umbrella contractor is possible, there are some challenges to keep in mind:

  • Fewer Lender Options: The range of lenders willing to work with umbrella contractors is smaller compared to those available for traditional salaried employees. This can limit your choices when applying for a mortgage.
  • Restrictions for Multiple Employment: Some lenders may be hesitant to approve your application if you work for multiple companies at the same time. This adds another layer of complexity to your mortgage options.
  • Bad Credit Impact: If you have a poor credit history, your options become even more limited. Lenders are already selective about working with umbrella contractors, and bad credit could further reduce the number of lenders willing to consider your application.

How Cleerly can help

These potential disadvantages highlight why it’s essential to work with a specialist mortgage broker like Cleerly who understands your unique circumstances and can guide you toward lenders best suited to your needs.

A mortgage expert can offer several tangible benefits for temporary and agency workers:

  • Tailored Documentation Assistance: Our Consultants assist in preparing all necessary paperwork for your mortgage application, ensuring you have everything in order to meet lender requirements.

  • Credit Report Optimisation: By downloading and reviewing your credit reports, they help identify and rectify any inaccuracies that might affect your approval chances.

  • Access to Suitable Lenders: With their knowledge of the lending landscape, they identify mortgage lenders who are more favourable to temporary or agency contracts, securing the best available rates for you.

Each contract situation is unique, and having a broker who specialises in this area means you'll receive bespoke advice tailored to your specific needs. Their established relationships with lenders can provide access to exclusive deals, giving you an edge in securing a top mortgage offer.

By partnering with a knowledgeable broker, you streamline the mortgage process and enhance your chances of success, especially when navigating the complexities faced by temporary workers.

Olivia Harland, Senior Mortgage Consultant


How Do Mortgage Lenders Assess My Income?

When applying for a mortgage as a contractor, lenders typically assess your income based on a working year of either 46 or 48 weeks. There are two primary methods lenders use to calculate your income:

  1. Gross Contract Value
  1. Total Gross Pay from Payslips

Some lenders will choose the lower of these two figures, while others may stick to one method consistently.

Calculating Gross Contract Value

For contractors paid on a day-rate basis, the gross contract value is calculated using the following formula:

Day rate x 5 days x 46 (or 48) weeks

If your contract specifies working fewer than five days per week, the formula will adjust to reflect that lower number of days.

For hourly-rate contractors, lenders use either a 7-hour or 8-hour day to determine your income. The calculation looks like this:

7 (or 8) hours x hourly rate x 5 days x 46 (or 48) weeks

Calculating Total Gross Pay from Payslips

Alternatively, lenders might base their assessment on the gross income shown on your monthly payslips. They use the following steps:

  1. Multiply your monthly gross pay by 12 to find your annual income.
  1. Divide this annual figure by 52 to calculate your weekly gross pay.
  1. Multiply the weekly gross pay by either 46 or 48 weeks, depending on the lender's preference.

By using these methods, lenders aim to establish a reliable and accurate measure of your earning potential. Understanding how they calculate your income can help you prepare and ensure your application reflects your financial standing effectively.

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Eligibility Criteria for Umbrella Contractors

Eligibility criteria for agency and temporary contractors operating under an Umbrella will vary from lender to lender. While basic requirements such as income, age, and credit history always apply, each lender may have additional, specific conditions you’ll need to meet. Navigating these differences can be complex and often requires significant time and expertise.

Contracting Experience and Employment Gaps

Some lenders may insist on a minimum period of contracting experience, such as six months, a year, or even longer. Others might focus on limits for gaps between contracts or how much time remains on your current contract.

Understanding Employment Gaps

For most lenders, it's crucial to demonstrate that you've maintained continuous employment through your contract work. Typically, this means showing evidence of steady work over a set period. However, there's flexibility with some lenders who are more lenient and may allow gaps of up to six weeks between contracts.

This flexibility can be a significant advantage for temporary or agency workers who often face the uncertainties of contract renewals. Therefore, when considering a mortgage, it's essential to check each lender's specific requirements regarding employment continuity and gaps. By doing so, you can better position yourself for a successful mortgage application.

Affordability Calculations

When it comes to calculating affordability, approaches differ as well. Some lenders may use an average of your payslips, while others rely on your day rate multiplied into an annual salary. Even these calculations can vary, depending on the lender's assumptions about how many weeks you work in a year. Often, a multiple of your annual income is used, with 4.5 times being common, but this might vary depending on your specific situation.

Contract Types and Proof of Income

The type of contract you hold can significantly affect your mortgage options. Some lenders are comfortable with various contract types, including fixed-term, temporary, or zero-hours, while others may have restrictions. It's crucial to provide comprehensive proof of income, such as recent payslips, P60 statements, and contracts confirming payment details, to strengthen your application.

Loan-to-Value Ratios and Deposits

For temporary contractors, the maximum loan-to-value (LTV) ratio might be around 80%, meaning a 20% deposit could be required. If you're unable to meet this, options exist for smaller deposits, often needing at least 5% to 10% as a minimum.

Understanding these criteria is essential for ensuring a successful application. A specialist broker like Cleerly with experience in umbrella contractor mortgages for agency workers can help identify the lenders whose criteria align with your circumstances. This expertise can streamline the process and enhance your chances of securing a mortgage that meets your needs.

How much can I borrow as an Agency or Temporary Umbrella contractor?

Determining how much you can borrow as a contractor working through an umbrella company can be challenging, as lenders use varying methods to calculate affordability. Each lender may assess your financial situation differently, which adds to the complexity.

Typically, most lenders will cap borrowing at around 4.5 times your annual salary equivalent. That said, in certain cases, you may be eligible for a higher income multiple— up to 5 times your salary, depending on your circumstances. It's also important to note that regular financial commitments, such as loans, credit cards, or car finance, can affect how much you’re able to borrow.

You can use our contractor mortgage calculator to get a general idea of what you might be able to borrow as well as reading our case studies on how we've helped umbrella contractors in exactly these circumstances. However, keep in mind that these figures are for guidance only and not a definitive assessment. We would encourage you to speak to a Cleerly mortgage consultant on an obligation-free basis to better understand your unique circumstances. You can contact us on 02394 212 912 or complete an online quote.

Is It Better to Get an Umbrella Company Mortgage or a Limited Company Mortgage?

When deciding between an umbrella company mortgage and a limited company mortgage, it’s important to understand there is not actually a decision for you to make. You should apply with an appropriate lender based upon your current invoicing vehicle – whether that is an Umbrella company or a limited company. . Both options typically require specialist advice from an independent broker.

A key advantage of limited company mortgages is that they often allow for a higher take-home pay, as tax is not deducted at source. However, the trade-off is that you usually need a longer financial history to qualify. Most lenders will require at least two to three years of trading records if you're applying through a limited company.

On the other hand, for self-employed mortgages—including those for Umbrella contractors—the requirements can be less rigid in terms of trading history. You may need just a year or so of accounts to be eligible.

Both options have their pros and cons. Consulting a specialist broker can help you weigh the benefits and choose the path that aligns with your financial goals and circumstances.

 

How Can I Be Realistic About My Mortgage Repayments?

Navigating the world of mortgages as a contractor can be daunting. To ensure you don't over-extend financially, it's crucial to adopt a realistic approach when estimating your mortgage repayments. Here’s how you can do just that:

Understand Your Income

  1. Evaluate Earnings: Begin by calculating your average monthly income over the past year. As an independent professional, your income might fluctuate, so it's important to use a conservative estimate.

  2. Account for Variability: Consider the potential for slow periods in your industry and how that might affect your income.

Calculate Your Expenses

  • List Monthly Obligations: Document all your regular expenses, including utilities, food shopping, insurance, and any outstanding debts.

  • Set Aside Savings: Remember to factor in your savings goals, whether it's for emergencies or retirement.

Use Mortgage Calculators

  • Online Tools: Utilise online mortgage calculators to get a snapshot of potential repayments.

  • Interest Rate Scenarios: Experiment with different interest rates to understand how fluctuations might impact your budget.

Seek Professional Advice

  • Speak to a Financial Advisor: Consider consulting with a trusted financial advisor who can provide personalised guidance based on your financial situation.

  • Mortgage Brokers: Engaging with a specialist mortgage broker, like Cleerly, can also be beneficial, as they have access to a wide range of lending options tailored to contractors.

Plan for the Unexpected

  • Create a Buffer: Try to maintain a financial buffer to cover your mortgage for a few months in case of unexpected changes in income or other emergencies.

By following these steps, you’ll be better prepared to manage your mortgage responsibly and confidently, without the stress of over-commitment.

Tips for Umbrella contractors seeking a mortgage

Boost your chances of securing a competitive contractor mortgage with these essential tips:

  • Minimise Gaps Between Contracts:

    • Aim to maintain a steady income throughout the year. This demonstrates to lenders your reliability and financial stability.
  • Keep Contract Documentation Current:

    • Having a copy of your most recent contract and assignment schedule is essential when preparing your mortgage application. This not only displays your income but also provides lenders with insight into how long your current contract extends. By showcasing both steady work and updated contract details, you'll present a comprehensive financial picture to potential lenders, increasing your chances of mortgage approval.
  • Organise Your Paperwork:

    • While you may feel confident about your monthly income, lenders need proof. Compile invoices, bank statements, and accounts that clearly demonstrate your financial stability and operating expenses. Additionally, gather standard documents like photo ID, proof of address, and recent payslips. Many lenders will also require copies of your recent P60 forms and evidence of past contracts.
  • Check and Enhance Your Credit Score:

    • Address any errors in your credit report and aim to reduce existing debts. Download your credit reports to ensure there are no inaccuracies that could hinder your application. An experienced mortgage broker can assist you in evaluating these reports and identifying areas for improvement.
  • Save a Larger Deposit:

    • A larger deposit can benefit you by securing a lower loan-to-value ratio, potentially leading to better mortgage rates.
  • Consult a Specialist Mortgage Broker:

    • Engage with a broker who offers tailored advice and access to a variety of mortgage options. A specialist broker can introduce you to lenders who are more favorable towards temporary or agency contracts, providing access to exclusive deals and bespoke solutions.

By following these steps and seeking expert advice, umbrella contractors can navigate the mortgage process with greater confidence and success.

Umbrella Mortgage Frequently Asked Questions

While working as a contractor under an umbrella company has its advantages, it’s a common misconception that getting an umbrella company mortgage is easier than applying for a limited company or self-employed mortgage. The reality is that the process and requirements can be equally complex for all three options, depending on your specific circumstances.

The best mortgage option for you will largely depend on factors such as your expected income and whether contracting is a long-term plan or a short-term arrangement. Each situation is unique, and what works for one person may not be the right fit for another.

Certain mortgage providers are hesitant to approve applications from contractors employed by offshore umbrella companies, and in some cases, they may refuse them altogether. This stems from the questionable practices of some offshore firms that operated in a way to bypass tax regulations.

These companies often attracted contractors by promising significant tax savings through offshore loan schemes, setting up their operations in tax havens like the Isle of Man or Jersey. Essentially, they attempted to disguise contractors’ earnings as non-taxable loans. However, HMRC quickly identified these schemes as tax evasion and has since cracked down heavily on both the umbrella companies and the individuals using these arrangements.

It’s important to note that not all umbrella companies operate this way. There are many well-managed and fully compliant firms in the industry. If you’re unsure about your current umbrella company’s practices, you can turn to the FCSA (Freelancer and Contractor Services Association) for guidance. They offer an excellent resource on identifying compliant and ethical umbrella companies, ensuring you choose a trustworthy partner.

Not all lenders are willing to offer mortgages to contractors working under umbrella companies, which is why enlisting the help of a mortgage broker with expertise in this area can be invaluable. These professionals understand the unique challenges and can guide you to lenders who are more open to umbrella company applications. Here are a few examples of how certain lenders approach applications and what their criteria entail. Cleerly have an in-depth article featuring Umbrella-friendly mortgage lenders for further information.

  • Halifax

Halifax is open to considering umbrella company mortgages. They base their income calculations on the lower of either the gross value of the contract or the income derived from the payslip or bank statement. Both methods assume 46 working weeks per year.

  • Barclays

Barclays assesses affordability based on the average of your last three months’ taxable pay, excluding holiday pay and factoring in pre-tax deductions by the umbrella company, such as the agency fee and employer’s National Insurance contributions. Applicants must have been contracting for at least 12 months, with no contract gaps exceeding six weeks during this time.

  • Natwest

A NatWest contractor mortgage can be achieved for both limited company and umbrella company contractors and is summarised below.

  • For umbrella contractors earning less than £75,000 per year, contracts covering the previous 12 months plus the next 3 months are required.
  • For umbrella contractors earning more than £75,000 per year, contracts over 12 months must be evidenced, with 6 months of those having been worked already.
  • For limited company contractors, they must earn over £75,000 and provide contracts covering 12 months with at least 6 months having been worked already.
  • For all contractors, income on the contract rate is calculated over 46 weeks (rather than 52) and there must not be any gaps longer than 6 weeks in a 12-month period.

The amount of deposit required to buy a house in the UK can vary depending on a number of factors, such as the price of the property, the type of mortgage you are applying for and your individual circumstances.

Similarly, some lenders may require a larger deposit for properties that are deemed to be higher risk, such as those that are located in areas with a high risk of flooding, or those that are of non-standard construction.

As a contractor, the amount of deposit you need to buy a house may differ from that required of a salaried employee. This is because lenders may see your contracting income as more variable and less predictable, which can in theory make it more difficult to secure a mortgage.

Some lenders may require you to have a larger deposit as a contractor, in order to offset this perceived risk of your income being less stable.

There are a number of government schemes and initiatives that you may be eligible for as a contractor. The Shared Ownership scheme allows you to purchase a share of a property (usually between 25% and 75%) and pay rent on the remaining share. This can help to reduce the amount of deposit required, as you will only need to save for a deposit on the share of the property that you are buying.

Applying to the wrong lender can have catastrophic consequences on your chances of gaining approval. You could be offered less competitive terms than you would ordinarily be able to achieve, and it can impact your credit rating with unnecessary searches from lenders who would never be able to help in the first place.

It is important to seek advice from a mortgage broker who has experience working with contractors, as they can provide guidance on the most suitable mortgage products and lenders for your individual circumstances. They can also help you to navigate the complex process of applying for a mortgage as a contractor and ensure that you are able to secure the most competitive mortgage deal possible.

One of the questions we are frequently asked is whether, as a contractor, you need to have been contracting for a set period of time in order to obtain a mortgage.

Lenders historically have preferred borrowers who have a stable source of income, and as a contractor, they will want to see that you have a consistent track record of earning a steady income. Lenders will look at your employment history, your income over the past few years and your future earning potential to determine whether you are a good candidate for lending.

If you have only recently started contracting, or if you have a history of fluctuating income on zero hours contracts, lenders may be hesitant to approve you for a mortgage via the traditional routes. However, if you can demonstrate that you have a strong financial track record, a solid income stream and a reliable client base, you may be able to secure a mortgage even if you are relatively new to contracting.

The key is in dealing with a specialist mortgage broker who truly understands how contracting works, how it differs to standard employment, and crucially, who has the relationships with contractor friendly lenders in order to get your situation assessed fairly.

If you have been a contractor for a number of years but have taken a break until recently, it may still be possible for you to get a mortgage, but there may be some additional challenges.

Lenders will want to see that you have a consistent track record of earning a steady income, and a recent break in your contracting work could make them more cautious about lending to you, due to having concerns over your ability to maintain the mortgage in times when you are out of contract.

A specialist lender, however, can have this considered compassionately, as the benefits of contracting are explained to them and they can see that the only reason you are out of contract is through choice and lifestyle, rather than the inability to find new work.

Having a current CV showing your experience and expertise will mean that your broker is able to demonstrate your employability to the lender and ensure that you are not penalised for having a lifestyle that your experience affords you through working as a contractor.

In summary, while full-time employees may have an easier time getting a mortgage than contractors, by dealing with a specialist mortgage broker who understands contracting, you can ensure you are not treated unfairly by lenders when it comes to underwriting decisions, and you can unlock the borrowing power that your contract deserves.

The interest rate that could apply to your mortgage as a contractor depends on a number of factors, such as your income, employment history, credit score and the lender’s lending criteria.

It’s important to realise that all of these factors are determined at underwriting stage, and so it isn’t so much a question of what rates you will be able to access as a contractor, but how you can access the same rates as regular PAYE employees by choosing the right lender for your circumstances.

One of the main factors that lenders consider when determining your eligibility is your income. As a contractor, your income may be seen to be more variable than that of a salaried employee. Lenders may therefore be more cautious about lending to you, as they may see you as a higher risk borrower.

Another important factor that lenders consider is your employment history. If you have a long history of contracting and have worked for a variety of clients, this may be seen as a positive by lenders, as it demonstrates your ability to generate a steady income. However, if you are a relatively new contractor, or have had gaps in your employment history, lenders may view you as higher risk.

Lastly, your credit score is another important factor that lenders consider when determining your mortgage interest rate. If you have a good credit score, this may help to offset any concerns that lenders may have about your income or employment history.

The big mistake that many contractors make is shopping around from lender to lender with direct applications. Even if all of the above points are satisfactorily met, you may be met with a declined application from a lender who advertise themselves as ‘contractor friendly’.

The reason for this is underwriting. Underwriting is the most important aspect of a mortgage application. In essence, it is the process by which the bank decide whether to lend to you or not. This comprises an assessment of all aspects of your case, including your income and how it is made up.

At Cleerly, we frequently come across cases that have been turned down by a lender that we know will lend, due to an underwriter not having the required knowledge of contracting, often leading to requests for documentation that you cannot provide, and ultimately leading to a declined application.

With our access to specialist underwriting teams within the main banks, we can ensure that only underwriters who are familiar with the way that you work are reviewing your case, meaning the decision is made by someone who truly understands the earning potential that being a contractor brings.

This means that your application is truly judged on it’s own merits, and you can quality for a High Street mortgage rather than having to resort to specialist lenders.

Having credit problems in the past can make it more difficult to secure a mortgage as an agency contractor, but it is by no means impossible. If you're a temporary or agency worker with bad credit, don't panic. There are avenues available to you that can lead to securing a mortgage. Here's what you should consider to give yourself the best chance:

Check your credit report: It’s important to understand exactly what your credit report looks like. You can obtain a free copy of your credit report from one of the three main credit reference agencies in the UK – Equifax, Experian, and TransUnion. Check your report for any errors or inaccuracies, as you may be unknowingly penalised for something that is reported in error. Top tip: don’t be blindsided by the credit agency ‘score’ – this is just their interpretation of your credit file and has no bearing on the decisions a lender will make in assessing any application.

Engage with an experienced mortgage broker: A mortgage broker can be invaluable, especially when your employment status and credit history aren't straightforward. They can help you find competitive mortgages, even if it means working with lenders who specialise in bad credit scenarios or exploring alternative mortgage solutions tailored for temporary or agency workers.

Consider a specialist lender: There are lenders who specialise in providing mortgages for those with historical credit issues. While you may end up paying a higher rate than a ‘high street’ lender might charge, often it can be the difference between getting a more expensive mortgage, and not getting one at all. Top tip: usually these lenders are only available via brokers and do not accept direct applications.

Improve your credit report: Even if you’ve had credit problems in the past, there are still things you can do to improve your credit profile. This could include paying off any outstanding debts, making sure that you’re on the electoral roll, and ensuring that you make all future repayments on time. Top tip: credit cards are a key area to focus on, as lenders will take higher nominal rates of interest on these balances, even if you have a 0% card, to allow for future fluctuations.

Have as much deposit available as possible: With a patchy credit history, particularly if you’ve had County Court Judgements, you may be required to pay a higher deposit than you would otherwise. This is because lenders may view you as a higher risk borrower and need to mitigate the risk by lending a lower proportion of the house value as a mortgage. Top tip: do not assume that CCJ’s will ‘drop off’ your credit report after six years as they will still remain enforceable and can still be traced by lenders.

Speak to a specialist mortgage broker: A mortgage broker like Cleerly can help you to find the right lender for your circumstances. They’ll be able to give you advice on what kind of mortgage you’re likely to be eligible for and help you to navigate the application process.

As mentioned earlier, there are a number of lenders who may be able to help who are not open for direct applications, making the use of a broker essential. Similarly, you may find that your situation is not as bad as you think it is, and that a high street lender may be able to help.

Ultimately, the best course of action will depend on your individual circumstances. With some awareness and preparation, it may be possible for you to secure a mortgage, even if you’ve had credit problems in the past. As with most areas of concern, the key is to speak to a specialist mortgage adviser who can offer the best options available based on your own circumstances.

Resources for Understanding Contractor Mortgages

Navigating contractor mortgages can feel overwhelming, but there are several resources available to help simplify the process:

  • Financial Guides and Blogs: Many online platforms offer detailed guides and insightful articles about contractor mortgages. Websites such as IT Contractors UK and Umbrella.co.uk provide a wealth of information about mortgage options, lender criteria, and industry insights.

  • Mortgage Guarantee Schemes: Government-backed initiatives like the Mortgage Guarantee Scheme can assist contractors in securing a mortgage. These schemes are especially suited for those with limited deposits and can increase your chances of approval.

  • Tax Advisory Services: Understanding the tax implications of a contractor mortgage is crucial. Consulting services that focus on buy-to-let or self-employed tax matters can provide clarity on deductible expenses and other tax-related benefits. Cleerly partners with a range of Contractor businesses who specialise in advice and services. 

By leveraging these resources, contractors can better understand their mortgage options and make informed decisions.

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