Contractors often have the impression that they will have a lot of trouble finding a mortgage provider, and some of the stories you may have heard will probably have you believing that it is an utter nightmare. However, there are some myths which prevail and some truths that never seem to surface so we have put together this FAQ page to help you to sort the facts from the fiction.
Do I need to have three years of financial accounts before I can make a mortgage application?
This may have been the case in the past, but currently it is possible to arrange a mortgage based on your contract rate. This means that you do not have to be able to prove how long you have been contracting or provide accounts going back years. Whilst some high street mortgage lenders have relatively rigid rules about lending, there are specialist underwriters who are able to base their offers on the contract that you have rather than accounts from previous years. This means that you could secure a mortgage with just your contract, bank statements and ID as proof of your position.
Is it true that lenders only accept contractors who have been contracting for six months or more?
Many call centre agents who are following a script will tell you that you need to have proof that you have spent a ‘substantial’ time in your current role in order to minimise the risk of lending to you. This can cause problems for contractors who only spend a short time in each role, but there are underwriters who are able to skip this aspect of the assessment process altogether on the understanding that contractors do not conform to the expectations one might have from someone in traditional employment. This means that even if you are new to contracting, there should be lenders who will understand your situation and make you an offer based on their understanding of the nature of the work.
Lenders may perceive contractors as high risk; will this affect how much I can borrow?
Whilst some lenders will expect every applicant to fit their expectations of those in regular employment, there are those who understand what it means to be a contractor and how it works. Like anyone trying to secure a mortgage, if you have a deposit and a good credit rating then you should be able to borrow about four times your contract rate and be classed as low risk. However, if you have CCJs or defaulted mortgage payments on your credit file, you may have more trouble, but it will not be harder for you than it would for someone in permanent employment. Even if you think your financial history will stand in the way of securing a mortgage, it is worth speaking to specialist underwriters to see what kind of mortgages they can offer you.
I have heard that I will need an incredibly large deposit such as 50%, is this true?
There is no need for such a large deposit and most homeowners purchase with a deposit of around 10% to 20%. Although 90% and even 100% mortgages used to be available, lenders are unlikely to offer them in the wake of the credit crunch, but you can shop around to find the option that is right for your situation.
Do lenders quote higher interest rates for contractors?
In most cases, interest rates for contractors and permanent employees are the same, although some find that they actually get better rates than those in traditional jobs. This is particularly true of those who have been able to take advantage of their higher earnings to save for a deposit, which can make interest rates and monthly payments smaller. Contractors often have better credit ratings, which can make it easier to find the right rate.
Are self certification mortgages the best option for contractors and are they still available?
Many mortgage brokers do not really understand the way that contracting works and have used a system called ‘self certification’ to arrange mortgages for contractors. These have been less and less common since the credit crunch, but they were also preventing contractors from accessing some of the best interest rates and beneficial ‘loan-to-value’ rates. Using a specialist underwriter could help you access mortgages based on just your contract rate.
I’ve heard that the reference process is really complicated – is that true?
You may have heard stories about contractors waiting for weeks to have their mortgages approved, or having a long list of referees required to complete the process. However, specialist underwriters who appreciate the nature of contracting work can secure you an offer based on your contract with no need for collecting references, which can make the process significantly faster and easier.
Will my mortgage provider charge me a higher rate because I am a contractor?
Lenders change different rates for a variety of reasons, including fluctuations in base rates for those on variable mortgages or because the fixed term of your current arrangement has come to an end. However, the fact that you are a contractor should make absolutely no difference to the rates you are offered. Unless you are seeking to change the terms of your agreement or release equity from your property then your employment status is unlikely to make any difference.
Anyone who wants to secure a mortgage, whether to buy their first home or re-mortgage their property, should consider specialist advice from financial professionals who really understand the nature of contracting. Contractor Mortgages made easy specialise in mortgages for contractors and can provide more information on rates and the amount you may be able to borrow.
If you are thinking of buying a property or remortgaging an existing property, Contractor Mortgages Made Easy maybe able to help you. call us on 0844 44 88 800 or email them on firstname.lastname@example.org