We’ve recently had some clients submit questions regarding obtaining a contractor mortgage and how difficult it may be. Here we answer this question about how to get a contractor mortgage.
Many contractors may find it a struggle to get a contractor mortgage, due to the lack of job security and the risk that comes with being self-employed. Lenders want proof of steady income and ability to repay a mortgage, which for contractors is sometimes easier said than done as income can fluctuate when contractors are between contracts, or when they switch to a new contract.
Here are some tips on how to get a contractor mortgage:
1. Choose a contractor mortgage specialist
Part of the complication with getting a mortgage is the variety of ways available for contractors to pay themselves, i.e. limited company, umbrella company and sole trader. This is one main reason that banks and high street mortgage advisors are not necessarily the right option when trying to get a contractor mortgage. These firms are largely unfamiliar with the contracting industry and the different ways contractors and freelancers are paid, therefore to get a mortgage and a viable mortgage rate it is wise to enlist the help of a contractor mortgage specialist.
Contractor mortgage lenders have a special underwriting process specifically geared to determine contractors’ eligibility for a mortgage. One of these specialists is Contractor Financials, who will only use your contract rate as criteria when helping you get a mortgage. Contractor Financials works with lenders and mortgage providers to help you get a mortgage that’s tailored to your needs and lifestyle.
Get an idea of how much you could borrow by entering your daily contract rate on the Contractor Financials website.
2. Aim to achieve and maintain a solid credit rating
It’s no secret that credit score plays a big part of getting a mortgage. This also applies to you as a contractor applying for a mortgage. The better your credit rating, the more likely you are to get a competitive mortgage.
3. Plan your deposit strategically
When planning your finances in preparation for purchasing a home, a 10% to 25% deposit is normally the recommended range for contractors looking for a mortgage. However, it might make it easier for you, in the long run, to have a larger deposit as it lowers your risk in the eye of the lender. Having a larger deposit will also raise the likelihood to receive a higher loan or a lower rate.
4. Know what you can afford and plan for the future
Even if a lender can give you a higher mortgage than you expected, try to be realistic and assess what you can afford as a monthly repayment. Consider the financial obligations of your limited company, such as VAT and Corporation Tax, as well as other financial matters such as saving for time in-between contracts or holidays you may want to take.
5. Consider the best way to maximise your income
Saving to buy a home in the UK is no easy achievement, even with help-to-buy schemes available for first-time home buyers. Housing prices in London slumped in the month of the Brexit vote, but in such a tumultuous market it’s important to plan for the worst and hope for the best. One way to do this is to ensure that you are maximising your take home pay and, in turn, maximising the amount you are able to put away for your future home.
A specialist contractor accountant can help you achieve the maximum take home pay legally available to you. Find out more about our UK contractor accountant services.
If you have any questions on how to get a contractor mortgage, our expert consultants would be happy to refer you to the contractor mortgage experts, Contractor Financials. Contact us today on 01707 871622 or request a callback.