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.