While the UK employment market has shown remarkable improvement and mortgages have reached their peak since the 2008 financial crisis, lending criteria can be behind the times. Therefore, it can often be tricky for contractors to navigate the mortgage landscape due to uncertainty on the part of banks and building societies with regards to the income of a contractor.
However, there are a number of steps that a contractor can take to ensure that they achieve the best mortgage deal available to them that will truly reflect their financial position.
To help you access the mortgage you need, we’ve put together a list of 10 top tips for contractors:
Getting a mortgage as a contractor
Have proof of income
You will need to be able to provide proof of income. Many lenders will require both a copy of your current contract, showing your hourly or day rate, and also copies of bank statements; proving your income stream is regular and of a sufficient level to make the repayments.
Some lenders accept just 6 months proof of income, whereas others may require anything up to 3 years of statements. However, as a general rule the more information you can provide, the better the mortgage rate available to you.
Show your continued ability to pay
It will be advantageous for you to demonstrate that you can continue to make your mortgage payments in the event of your current contract expiring. It is therefore beneficial to have your CV up to date, which will highlight your full work history. Remember you’ll need to present yourself as a low risk investment to the lender.
Have a good deposit
The minimum deposit required for a mortgage is usually 5%. However, lenders will favour individuals who can provide higher deposits, this is true for anyone and not just contractors. Ideally, in order to access the most competitive rate mortgage deals, you should aim to save anything between a 10% and 25% deposit against your property if possible.
Ensure you have a good credit rating
Lenders are increasingly risk aware and will look for any legitimate reasons they can find not to lend money to you. A good deposit and income is usually not enough to secure a mortgage, you will also need a good credit rating, giving the lender no good reason to turn you down.
Bring all the paperwork
Ensure your CV is up to date as it will be used to prove your skills, experience and a continuous work history. Bring a copy of your current contract, as this will be used to demonstrate your earnings, and your bank statements as far as you can go (up to 5 years) to best support your loan application. You’ll also require proof of identification too, a passport or photo driving licence.
Avoid breaks between contracts
Lenders will want to see a strong work ethic and commitment with a continuous work history. If there are any breaks in your work history, it is essential that you explain their reason, e.g. due to children, caring for a family member etc. It will be useful to look back at this before you meet a mortgage provider.
Know your financial commitments
Aside from the amount you wish to borrow, it’s important that you are fully aware of all of your financial commitments, e.g. other loans or credit cards, monthly outgoings etc. If you can make a list of all of your current spending, you can effectively demonstrate your ability to afford mortgage repayments.
Research the type of mortgage you want
Are you looking to set up a repayment mortgage or re-mortgage your existing property? Would you prefer a fixed rate or variable, discount, tracker or capped rate deal? Would you like to be able to make overpayments in the future without incurring any repayment penalties? It is highly beneficial to do your research now and find out what type of product suits you best.
Consider using a broker
High street banks and building societies are accustomed to offering mortgages to people employed full time. They have affordability calculators based on salaries and are often unsure how to handle lending to contractors.
Specialist contractor mortgage brokers will understand how you work and can negotiate terms with lenders on your behalf, which may work in your favour. Mortgage brokers will charge a fee for their services, but many will carry out initial research on your behalf at no cost.
Ask for recommendations
If you’re registered with an umbrella company it could be worth asking for their advice on mortgage providers. Many umbrella contractors with Sterling have found their ideal mortgage deals through our partnership with Faraday Mortgage Associates. Faraday are experts in providing mortgages and insurance, with significant experience of working with the contracting industry. Therefore, they are ideally placed to guide contractors through the mortgage process so that they receive the best deal.