If you’re a freelancer or self-employed and looking to buy a home, find out how you can improve your chances of getting a mortgage with a contractor mortgage broker.
Working as a contractor may give you flexibility but buying a home could be problematic. Fortunately, a specialist contractor mortgage broker will be able to advise you on what to do even if your income fluctuates. Here is an overview of the assessment process and the services a contract mortgage broker can provide.
What is a contractor mortgage broker?
A contractor mortgage broker is a financial adviser with expertise in arranging mortgages for self-employed individuals and contractors. If you’re looking for a contractor mortgage, it’s recommendable to speak to a financial adviser for guidance.
Dealing with contractors every day, specialist brokers are familiar with the contractor-friendly lenders around. Their service can save you a lot of time and hassle because of this.
The application and assessment process for a contractor mortgage can be complex. A contractor mortgage broker can help you understand the rate, term, features, and insurance.
What does the process look like?
The contractor mortgage underwriting process is complex. The reason for this is that no two contractors’ situations are the same, and there are different mortgage solutions available as a result.
First of all a contractor mortgage broker will be able to point you in the direction of a lender who is happy to work with contractors. Your broker would know which lender was best suited to your application.
When you apply for a contractor mortgage, most lenders will ask for the last two years of your account records. They will then assess your average earnings in that time as an indication of your earning capacity.
Some lenders might be willing to assess your earning potential based on your day rate. This approach is ideal for people who have only recently left full-time employment, and don’t have much evidence to provide as a contractor. Instead, the lender will assess your previous experience and qualifications.
You’ll also need to show evidence of your operating costs and any other expenses. Your lender will take these into account. They will then make an affordability assessment, which means calculating a safe amount to lend you. This is based on how much you earn on average, the security of your income, and your expenses.
Who they are aimed at?
Contract mortgages vary slightly to those available to employees on a payroll. They’re specifically designed for contractors or self-employed freelancers.
The complicated part is that not all freelancers count as contractors for mortgage purposes. Contractors typically work out of a Ltd company and take on one contract at a time. Sometimes they also work for agencies or umbrella companies.
A freelancer runs contracts with different clients at the same time, often for shorter periods of time. They can either work out of a Ltd company or as sole-traders.
Contractor mortgage lenders see freelancers with this approach as less reliable in terms of income stability. This doesn’t mean you won’t be accepted for a mortgage, but your mortgage lender will assess your situation differently.
How do you go about arranging one?
In order to go about arranging a contractor mortgage, it’s advisable to consult a contractor mortgage broker. They will have the specialist knowledge and experience for your unique situation.
Not all high street lenders will necessarily be able to cater to your needs. It’s important to find out which lender to go to, and tailored professional advice can help you answer this question. It’s a complex problem for price comparison sites, and a contractor mortgage broker will understand your requirements better.
Before you start the process of buying a new home, it’s a good idea to do some research first. Find out how much you can borrow and calculate a more realistic budget. A lender can give you an estimate in the form of an agreement in principle (AIP). You can take this to your real estate agent.
If you have an estimate from a specialist broker, this can help you a lot when buying a house. It’s the first step towards getting your contractor mortgage, and you’ll make a better impression on the seller and anyone involved in the process.
How do they work?
There are several contractor-friendly lenders on the market that base your affordability on your contract rate, rather than just your accounts. There is a higher opportunity for securing the loan you need basing your suitability for a mortgage on your annual contractor income.
Often exclusive deals are given to contractors to suit their unique situation. For example, contractors can apply for a wide range of 95% loan-to-value mortgage products from commercial lenders.
If you arrange a contractor mortgage you can then decide to opt for either a repayment or interest-only mortgage. For interest-only, you only pay back the interest each month and the amount you borrowed doesn’t change. With repayment mortgages, you pay back the amount borrowed over the period in addition to the interest.
You can then opt for fixed-interest or fixed-rate, or a variable rate mortgage. A fixed-interest is set so the payments can’t go up and down during that period. With a variable rate mortgage, the base rate is tracked more precisely.
How are they different from a standard mortgage?
Contractor mortgages are only really different from standard mortgages in the assessment process. This is because the traditional criteria used for assessing employees for mortgages don’t always apply to contractors and freelancers.
A contract mortgage broker will assess applications by bespoke criteria designed specifically to suit the lifestyle of contractors. Contractor mortgages are based on your gross contract rate rather than solely your PAYE income or salary plus dividends.
Once you have been assessed, a contractor mortgage is no different from a standard mortgage in terms of rates. It’s more the application process that might be slightly unusual. You might, however, be offered more flexibility and competitive prices if you go with a contractor mortgage broker.