Contractor advice: mortgages made easy

Unless you’re an expert in the area, the world of mortgages can seem like a minefield. With so many providers, terms, rates and industry jargon to get your head around, identifying the best deal for your needs doesn’t come easy.

Things can get a little more perplexing if you’re a contractor. Being self-employed brings with it great freedom and flexibility, but also some uncertainty – and mortgages fall under this bracket.

Buying a property should be an exciting experience and as stress-free as possible. We hope reading this guide will help you in the process.


Why is it difficult for contractors to secure a mortgage?

Working as a contractor, your income is likely to vary from month to month. It’s this inconsistency that rings alarm bells with some providers, who factor it in when calculating your ability to sustain mortgage payments.

As a Ltd Company contractor, it’s often more tax efficient to pay yourself a low salary and top it up using dividends, but this can also lead to issues securing a mortgage. A provider, for instance, may not take into account retained profit you already have in your contracting business – profit that proves you could afford a mortgage.

Of course, there are other factors that may see a mortgage application denied – poor credit history, career gaps and undisclosed credit are among these.

Essentially, when your salary isn’t fixed, providers consider it riskier to lend you money. This one-size-fits-all approach certainly doesn’t fall in a contractor’s favour, and it can seem extremely unfair.

Contractors also stand a high chance of being turned down for a mortgage even if they personally approach their own bank, which will only assess their earnings, and often conclude that they have failed the so-called affordability test.


How can contractors strengthen their application?

There are a number of things contractors can do to appear more ‘lendable’ to mortgage companies, but they’re not always practical or guaranteed to be successful. Some of these include:

  • Saving up a larger deposit, which from a provider’s perspective lowers ‘perceived risk’
  • Improving your credit score before you start house hunting
  • Obtaining evidence of ongoing agreements with companies to prove guaranteed future work, as well as renewed contracts
  • Limiting time off in the run up to buying a home, as providers may scrutinise you for being out of work for long periods


So, what’s the solution?

It may be more difficult to secure a mortgage as a contractor, but it’s certainly not impossible. And actually, with more and more people choosing to go it alone and become self-employed, there has been an increase in the number of bespoke mortgage deals tailored specifically to contractors and their unique needs.

For specialist mortgage deals, you need to turn to a specialist provider, such as Brookson Financial.

Brookson Financial’s in-depth knowledge of the contractor market has enabled them to work with lenders to develop unique products which take into account the distinct ways contractors work and earn money.

The company works with carefully-selected high street lenders to offer unique deals to people like you. You would be assigned your own, personal Mortgage Advisor, who would be responsible for liaising with lenders, estate agents and solicitors on your behalf to save you time. After all, we all know how precious time is when you’ve got your own business to run.


From one personal advisor to the next, if you’re looking to switch accountants or haven’t long started out in contracting, with Intouch, you’ll be paired with your own, dedicated Contractor Accountant. It’s their job to help your business run smoothly by taking control of time-consuming accounting tasks you would rather do without, while making sure that you stay on the right side of the tax man.

To find out about any of these services, call us on 01202 375879.


Can I get a mortgage as a contractor?

Can I get a mortgage as a contractor?

As a contractor, one of the most commonly asked questions is whether or not it is possible to secure a mortgage. Quite understandably, many contractors are unsure as to what their position is, given the fact that they’re not in permanent employment. It’s common knowledge that it’s becoming increasingly difficult to secure a mortgage following the Mortgage Market Review in 2014.


Yes, a contractor can secure a mortgage

As a very top-line answer; yes, of course a contractor can get a mortgage. Lenders aren’t there to prevent individuals from owning their home, simply to reduce risk associated with it. So it all comes down to taking the right route to ensure an application is made to a lender who understands contracting. In theory, so long as a contractor is able to provide two or three years’ worth of income details (for example, wage slips, accounts, dividends documentation) or, if operating as a sole trader, SA302s, it should be possible to secure a mortgage. However, unfortunately, it’s rarely that simple.


Many lenders do not understand contracting

One of the main problems in this area lies in that many lenders may not understand what a contractor is. Whether you’ve been contracting six months or six years, there ARE lenders out there who understand your situation and are happy to lend to you, so long as the standard criteria are met.


Different contractors operate in different ways

It’s important to understand that contractors can operate in different ways; sole traders or company directors primarily. With a company director for example, lenders will be looking at the combined salary and dividends drawn in a financial year, however this can cause problems for contractors who leave profits within the business. In this instance, it’s necessary to apply to a lender who will consider and take into account the company’s retained profits.


Many advisers are inexperienced
It is commonly seen, further to the above, that the majority of advisers in banks are inexperienced in dealing with anyone other than employed individuals, so when a contractor makes an application, they themselves are unsure as to what is and isn’t able to be assessed. This further backs up the justification for carrying out the research and finding a suitable lender who understands the trading style.


The bottom line is that a contractor will need at least one year’s accounts in order to be considered, however in reality, having two or three year’s accounts will make a larger number of lenders accessible.


Proving a steady income

So long as it can be proven that a steady income is earned and that, in the case of a director who pays a smaller wage and dividend, there are retained profits which can be taken into account, there’s no reason why a contractor should struggle to get approval on a mortgage. Our top tip here, however, is to speak with a specialist mortgage broker who fully understands the options available, has a track record of securing mortgages for contractors and that, as with all mortgage applications, the base criteria of affordability and the correct paperwork are met.


If you want any further information on getting a mortgage as a contractor, contact one of our team on 01202 375 562. Also, why not contact us to see how Intouch Accounting can help keep you compliant and maximise your income?


This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.