Applying for a mortgage as a contractor
Working as a contractor has many benefits but in some areas, it does require a little more work, especially when it comes to services providing you money for a new home. The good news is yes, it is possible to get a mortgage when working with an umbrella but it comes with some requirements that are important to know.
First of all when applying for a mortgage it will need to be with a lender that applies to your circumstances. It’s unfortunate but not all high street banks or money lenders will be open to setting up a loan for contractors who don’t always have a steady or properly defined source of income. Going to online comparison sites can lead to disappointment as many companies wish to categorise an individual as employed or self-employed, but when working through an agency or umbrella, it’s not so easy fitting into one box. They do judge their customers on a case-by-case basis but it would be bad business for them to lend to someone who isn’t able to pay back what they agreed to by certain deadlines and it would be even worse for the contractor who applied for it knowing the risks.
What all lenders will want to check is that a person can afford the monthly repayments, so a person’s income and expenditure is always analysed, along with their credit report. Often you will find that smaller brokers that work within a niche market will be more flexible, ask more questions about your personal circumstances and be able to liaise with lenders on your behalf.
Once you have found a service that will provide you with a loan you will need to gather documents together. While there are quite a few you need to present to your mortgage provider, the main ones you’ll need are:
- Proof of identity
- Proof of address
- Twelve months of pay slips
- Twelve months of bank statements
- Tax returns or SA302 for the last three years
- Your current/ongoing work contracts and their terms
Specialist lenders who do run services that are open to contractors typically have a few sets of rules that apply specifically to them. These include but are not limited to:
- You must have at least six to twelve months working under an umbrella company with, ideally, at least one contract renewal. (Some companies require min 2 years)
- Most lenders prefer their clients to be aged twenty-five or over.
- The lender may be preferable to you having one employer – ie, a single umbrella company for a certain length of time.
- Any extra income you receive (such as a bonus) may work in your favour, but others do not consider it as it’s not a constant form of payment or an accurate display of your earnings.
Tips for Getting Your Mortgage
Proving your income is actually easier when working through an umbrella company as they will have kept an accurate and up-to-date record of your earnings for their business, and most provide you with login details for a secure system for your payslips and P60s.
The more you can afford to put down on a deposit for your home the less risk it is to the providers which is always a good thing in their eyes.
Maintaining a good credit score is something your mortgage provider will want to see so ensure that you have checked on yours before applying and do what you can to keep it at an attractive level.
Think through what options are available to you. You could apply for a joint mortgage if you feel that would work out better for you or another alternative is to have someone be your guarantor but be sure to make it someone you trust completely.
To build trust with your providers, bring as much evidence of your contracting work as you can. This can include your previous contracts that you have undertaken, your qualifications that show you can do the work, and even your previous experience.
More evidence can be provided through your earnings over your previous working years. Ideally, this should be your bank statements, any invoices you have kept if working as a sole trader, payslips if an employee and information of any other accounts you wish to involve such as savings and ISAs.
One thing lenders don’t like is clear evidence of the risk they are taking so for them to see long periods of time when you’re not working is bad. It’s better to apply for a mortgage when you have a good workflow going.
We work with Roots Mortgages to ensure that our contractors are looked after in looking for their new home and their helpful, friendly and knowledgeable team is incredible.
If you need any more information or advice, please feel free to get in touch with us at any time!
