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Introduction -Contractor Mortgage Broker
Do you work as an independent contractor and run your own contractor limited company? Certainly, if you do, there may come a time when you decide to look for UK contractor mortgages. Therefore, getting a mortgage as a contractor will involve searching for specialist lenders. Basically, they will be able to find the best mortgage for you based on your circumstances. As a result, when you are in a contract role and search for a mortgage, it does not have to be complicated. Most importantly, you will need to obtain the proper contractor mortgage advice. In conclusion, it is best to speak to a specialist mortgage broker who understands how a limited company contractor works.
Initial thoughts
What to think about first
The majority of mortgage advisers, brokers, high street banks and building societies are less versed at how UK contracting professionals earn their income. Basically, they often deal with permanent employees. Furthermore, this includes those who work for an umbrella company or regular business owners. Therefore, many lenders out there do not offer a mortgage for contractors.
It is often the case that most mortgage advisers cannot package your income for your mortgage application correctly. Indeed, it is good to speak to one of the best specialist mortgage brokers. Indeed, they are contractor-friendly mortgage lenders. Therefore, this is a key factor when you look for UK contractor mortgages.
Other policies for limited company contractors
When you are a contractor in the UK, there are other policies besides mortgages that are specifically for contractors. Therefore, these may be worth considering and are:
- Contractor insurances in general.
UK contractor mortgages -an overview
Your income
Now, back to mortgages. First, a specialist contractor mortgage broker will calculate your income by:
- Taking your day or hourly rate for your contract work, and
- Multiplying this by how many days or hours you work a week.
Once they calculate your weekly income, the broker will multiply this by how many weeks you work a year. Indeed, usually this will be between 46 and 48 weeks per year. As a result, the figure that they come to is deemed to be your annual salary.
How much you can borrow
When we look at UK contractor mortgages, how much you can borrow for your mortgage will depend on your ‘affordability basis.’ Basically, in the simplest terms, mortgage lenders will consider your income and outgoings. Therefore, as a rough guide, you can look to borrow anywhere from 3 to 5 times your annual gross income.
If your day rate is £500 and you work five days a week, your annual salary will be around £115,000 to £120,000. As a result, you can roughly borrow £345,000 to £600,000. However, it will depend on how many weeks you work in a year.
Additional considerations
The evidence you need for UK contractor mortgages
Basically, the types of ID that you will need when you apply for a mortgage are:
- ID.
- Your current contract.
- Previous contract.
- A contract extension (if you have less than three months remaining on your contract).
- Three months of business bank statements.
Mortgage term
Typically, a mortgage will last around 20 to 25 years. What’s more, the same will apply to a mortgage for contractors. However, this can vary due to several factors. Basically, these include age, retirement plans, and monthly mortgage repayments. Indeed, when you set up your mortgage, you will decide the term (the length of the mortgage) according to your chosen repayment plan. As a result, the longer the term is, the lower the monthly repayment will be.
Apply for a mortgage if you have just started UK contracting
You can still look into UK contractor mortgages and apply for one, even if you have just started contracting. However, there needs to be evidence that you are in the same line of work and the same industry.
It is important that you get an AIP (agreement in principle) from a mortgage lender before you start house hunting. That is to say, an AIP is based upon a credit search and your income details, indicating how much they would lend to you. Therefore, although not set in stone, an AIP is a helpful guide and assurance for an agent. To sum up, it helps show that you can afford the property you are viewing.
The different types of mortgages in the UK:
First-time buyer Mortgage
If you are a first-time buyer looking for UK contractor mortgages, you are in a good position. Indeed, this is because there are many Government-backed schemes which can help you purchase your first home:
Help to Buy ISA
When you save into a Help to Buy ISA, the Government will boost your savings by 25%. However, when you do this the maximum bonus you can receive is £3,000.
A Help to Buy Equity Loan
If you apply for the Equity Loan, the Government will lend you up to 20% of the cost of your newly built home. Therefore, when you do this you will only need a 5% deposit and a 75% mortgage to make up the rest.
UK contractor mortgages -Shared Ownership
The Shared Ownership scheme is a cross between buying a home and renting,. Certainly, when you apply for such a mortgage you can own from a quarter to up to three-quarters of a property. Indeed, as part of this you will rent the remaining part of the property from the Government at a reduced rate.
Right to Buy
A Right to Buy scheme allows tenants who rent their homes from the local council to buy them at a discount. However, the size of the discount depends on the area and the property type.
Re-mortgage
When you consider a mortgage, if you are looking to move to another property or if your current mortgage deal has ended, you can consider a re-mortgage. Indeed, this process is switching onto a new mortgage deal. Basically, this could be with the same provider or a different lender. Therefore, when you do so, you could save money in the long run. In addition, you can also request to borrow more for home improvements.
Buy to Let UK contractor mortgages
In the UK, Buy to Let mortgages are available for contracting landlords. Certainly, these types of mortgages will allow them to borrow money to buy properties to rent out. Most importantly, unlike normal mortgages, Buy-to-Let mortgages are on an interest-only basis. Therefore, this means that for each month of the mortgage term, you will only need to pay interest on the loan. As a result, the amount you borrow will have to be paid back at the end of the term. Consequently, this can be good in the short term as your outgoings will be less each month. However, it is important to have a plan to pay off the loan or refinance at the end of your mortgage term.
In contrast, with a ‘normal’ mortgage, your monthly repayments will cover the interest and a portion of the debt. Basically, over the mortgage term and assuming you meet every repayment, the value of the loan will be paid back.
Final thoughts
If you are a contractor who is taking the time to look for a mortgage or need further mortgage information you are reading some good advice. Therefore, please feel free to speak to our trusted contractor mortgage broker partner, Broadbench. Indeed, they are one of the best brokers and specialists in UK contractor mortgages.
What’s more, if you would like to know more about what mortgage you could qualify for, please simply fill in the form below for the contractor mortgage broker. Once you have done this, the team will get right back to you with further details.
Frequently Asked Questions
Director
Consultant at Broadbench
People are often unaware of the opportunities available to them. This is especially true in financial services, where solutions and savings are hidden under layers of technical detail. It is my job to find creative and compelling ways for my clients to solve their financial problems and save money. Throughout my career, I have delighted in uncovering new ideas, finding hidden gems and solving problems my clients didn’t know they had.
