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Whilst Contractors often earn more than their PAYE counterparts, it may be more difficult to get a mortgage as a Contractor as your income will be perceived as less stable. An increased number of UK Mortgage Lenders are beginning to offer mortgages to Contract workers, meaning there are more options available now than in previous years.
It’s important to find a Mortgage Lender who will consider your specific form of income, and as a First Time Buyer and a contractor, there are a number of important factors to consider before buying your first home. Whilst most of these recommendations apply to mortgage applicants generally, in your circumstances, they could be essential in enabling you to secure a mortgage.
- Keep your credit file clean
- Register yourself on the electoral register
- Keep your bank accounts in order
- Get your deposit ready
- Budget all expenses
- Speak to your accountant about SA302s and Tax overviews
- Have a decision in principle or agreement in principle in hand
- Select a trusted solicitor
- Plan your survey
- Plan your move
How do I find the most appropriate mortgage?
A Mortgage Broker may be able help you to find the most appropriate mortgage for your circumstances. They have access to a wide variety of lenders and this allows them to look at many lender criterias against your circumstances at a glance. This means that you would not have to contact each individual lender in order to find mortgage criteria that matches your circumstances.
Using a Mortgage Broker may therefore improve your experience by saving you the time required to contact multiple lenders and offering experienced mortgage advice, which could help you to make a more informed choice.
How will new contractors be assessed?
The way that your income is assessed will depend on both the length of time you’ve been contracting or working in your current industry overall, as well as how you are paid. It’s fairly common for lenders to request evidence of your experience within your industry. This may include a CV, qualifications or evidence of past contracts.
Income is assessed differently by different lenders depending on their own criteria, and also depending on how you are paid. For example:
A contractor working through their own limited liability company
If you’re trading as a Limited Company Director, there are a number of ways that you may be assessed. Some lenders will accept your daily rate, which will be annualised to provide a salary. Another common method is to look at your salary and dividends over a defined period of time, to determine an average annual income. Finally, there are certain lenders who will look at your total income as a limited company alongside your salary.
A contractor working as a Fixed Term contractor (PAYE)
If you work as a Fixed Term Contractor through an umbrella company, your income is likely to be assessed based on your payslip information, much like a traditional PAYE applicant, however, given the short term nature of your contract, lenders will be more cautious and are likely to need additional proof of ongoing availability of work beyond your current Fixed Term Contract.
What documentation will I need?
This is another area where the requirements will vary depending upon your income type. The following types of documentation are likely to be required in most cases:
- Contracts and agreements
- Tax documents
- Signed business accounts
- Bank statements
- Personal ID and address information
What deposit will I need?
There is no definitive deposit amount that is relevant to Contractors, however, the larger the deposit amount that you are able to offer, the more likely you will be to secure a mortgage. Deposits are used to mitigate some of the risk involved with lending you a large sum of money, and therefore the less stable your mortgage application, the more deposit lenders are likely to require.
How much will I be able to borrow?
Regardless of your income type, Mortgage Lenders will carry out an affordability assessment, which will help them to determine how much they are comfortable lending to you.
Your proof of income will be used to consider the amount and stability of your income, which will be weighed against your current outgoings and whatever the repayments on your mortgage would be, to ensure you will be able to afford to repay your mortgage in the long term.
The following are the methods used by lenders to assess the income for contractors:
- Day Rate Assessment
- Company Accounts
Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.