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.