Contractor mortgage broker
If you work as an independent contractor and run your own limited company, there may come a time when you decide to look for a mortgage. Notably, this will involve searching for specialist lenders who can find the best mortgage for you based on your circumstances.
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. Further to this, it is best to speak to a specialist mortgage broker who understands how a contractor works.
`Regular’ mortgage advisers, brokers in addition to high street banks and building societies are less versed in how contracting professionals earn their income. To clarify, they often deal with permanent employees, including those who work for an umbrella company or regular business owners, and many do not offer a mortgage for contractors.
Please note that it is often the case that most mortgage advisers cannot package your income for your mortgage application correctly. Therefore, when you speak to one of the best specialist mortgage brokers who are contractor friendly, this is an important factor when you look for UK contractor mortgages.
Other policies for contractors
Being a contractor in the UK, there are other policies in addition to UK contractor mortgages that are specifically for contractors. Therefore, these may be worth considering and are:
Contractor mortgages in the UK
Now, back to mortgages. A specialist contractor mortgage broker will calculate your income by:
- Take your day or hourly rate for your contract work, and
- Multiply this by how many days or hours you work a week.
Then, once they calculate your weekly income, they will multiply this by how many weeks you work a year. 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 for your mortgage depends on your ‘affordability basis.’ Therefore, in the simplest terms, mortgage lenders will consider your income and outgoings. As a rough guide, you can look to borrow anywhere from 3 to 5 times your annual gross income.
For example, if your day rate is £500 and you work five days a week, your annual salary will be around £115,000 to £120,000. In turn, you can roughly borrow £345,000 to £600,000. Please note, it will depend on how many weeks you work in a year.
The evidence you need for your mortgage:
Please note that the types of ID that you will need when you apply for a mortgage are:
- A contract extension (if you have less than three months remaining on your contract).
- Three months of business bank statements.
Typically, a mortgage will last around 20 to 25 years. The same will apply to a mortgage for contractors. However, this can vary due to several factors. These include age, retirement plans, and monthly mortgage repayments. Therefore, 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.
You can still apply for a mortgage, even if you have just started contracting. Notably, there needs to be evidence that you are in the same line of work and the same industry.
It is key that you get an AIP (agreement in principle) from a mortgage lender before you start house hunting. To clarify, an AIP is based upon a credit search and your income details, indicating how much they would lend to you. 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. This is because there are many Government-backed schemes that can help you purchase your first home:
Help to Buy ISA
By saving into a Help to Buy ISA, the Government will boost your savings by 25%. Please note, the maximum bonus you can receive is £3,000.
A Help to Buy Equity Loan
When you apply for the Equity Loan, the Government will lend you up to 20% of the cost of your newly built home. Therefore, you will only need a 5% deposit and a 75% mortgage to make up the rest.
The Shared Ownership scheme is a cross between buying a home and renting. As a result, you can own from a quarter to up to three-quarters of a property. 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. Notably, the size of the discount depends on the area and the property type.
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. Please note, this process is switching onto a new mortgage deal, whether with the same provider or a different lender. In doing so, you could save money in the long run. In addition, you could also request to borrow more for home improvements.
Buy to Let Mortgage:
Buy-to-Let mortgages are available for contracting landlords. Please note that these will allow them to borrow money to buy properties to let. Importantly, unlike normal mortgages, Buy-to-Let mortgages are on an interest-only basis. This means that for each month of the mortgage term, you will only need to pay interest on the loan. Therefore, the amount you borrow will have to be paid back at the end of the term. Consequently, it 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. As a result, over the mortgage term (assuming you meet every repayment), the value of the loan will be paid back.
If you are a contractor who is taking the time to look for a mortgage or further mortgage advice, please feel free to speak to our trusted contractor mortgage broker partner, Broadbench. Please note, they are one of the best brokers and specialists in UK contractor mortgages.
Please complete the form below for the contractor mortgage broker if you would like to know more about what mortgage you could qualify for.