Being freelance often means earning more, which should make getting a mortgage easy. Unfortunately though, when it comes to being self-employed and contractor mortgages, things aren’t always simple.
The first thing with contractor mortgages is to understand what you’re up against. Having trouble just getting through the front door of a high street bank, even though you have a sizeable deposit? There are a few good reasons. For example, with an employed person the bank manager sees a steady income, but with the average freelancer they see anything but. Additionally, it gets harder when you consider that bank staffs aren’t usually trained to deal with these things. So not only do they not understand your business, but they also aren’t able to see how they can help you. Fortunately, there are other options and a mortgage broker for contractors can be of assistance.
Now we know why banks charge excessive rates or refuse contractors point-blank, let’s look at what freelance individuals can do to get an acceptable mortgage deal.
Let’s begin with numbers. Be under no illusion, if your finances aren’t organised then you’re going to struggle. The golden rule is that a contractor mortgage broker doesn’t want to hear from you until your income is clear and easy to understand. That means a record of everything, with documents to back it all up.
Next, we need to look at how high street banks work out how much they can lend you. By calculating this based on percentage, times salary and additional dividends, they arrive at a figure. The problem for many contractors is that this figure is lower than with employed people. Which is why a contract mortgage broker or mortgage provider who understands all this is essential. They’ll take a freelancer’s special circumstances into account, and will look at things like daily rate and gross revenue.
Let’s look at an example. Some banks, like the Halifax, will base their evidence on gross value of the contract, providing you’ve been contracting for at least 1 year. That goes for employed or freelance individuals or anyone operating via an umbrella firm.
Next, it’s essential to present the broker with contracts which put your company in the best possible light. A quality credit-score will also help enormously, adding to a glowing reputation which should help you secure a good deal.
Other things to note are that you need to make sure you select a broker who’s working for you instead of the lender. It’s a fact that some brokers work on incentive, with the amount earned depending on the interest rate the loan is sold for. This factor alone makes getting impartial advice a tricky challenge which may take research. Although this can eat into a broker’s commission, it’s true that they’re usually happy to have the business. Google a phrase like contractor mortgages and ensure you do your research.
If you’re still struggling at this point, there is always another option which makes you less high-risk. For example, if your partner is permanently employed with a high income then you could opt for a joint-mortgage.
If you run a limited company then there’s also another route through this, which involves sitting down with your accountant and viewing you as an employee instead of company director. It’s perfectly legal, and could allow you to borrow more money. The only trade-off is that it takes some accounting expertise and the process can be quite involved.
Interested in investing in properties? If so then you may be able to do this by way of your limited company, allowing you to rent the premises while remaining on the right side of the law. Every accountant knows different things, but the good thing is that Google now exists, so it shouldn’t be too hard for them to find out what they don’t know.
Last but by no means least, the fine print is there for a reason, so always read it. For any contractors dealing with mortgage related insurance policies this is particularly essential. Check for loss of earnings cover or redundancy cover, as many lenders don’t pay this out automatically. These policies are also often charged at a premium rate, and although you can’t claim on them, other possibilities do exist, such as changing them or saving money by cancelling them out-right.
So here’s a brief overview. Sort your accounts, ensure you have a minimum 1 year record. A good credit rating helps, and after that you should be able to look at various contractor mortgages. Last of all, persistence pays off, so it’s worth spending the time to land a solid deal that really works for you.