Lenders will look at how much you earn and your outgoings. Some will work off your last 2 years accounts or even your last contract.
This is where we come in. Our expert advisors will find out all about you, your history and future plans, and let you know.
We don’t just pick a mortgage product that suits the way you work, we will be by your side until you’ve turned the key in your front door. And we’ll even stick around afterwards (if you’ll have us).
For a contractor or freelancer, lenders do not have the luxury of assessing guaranteed employment and income. They, therefore, need to make themselves comfortable that the income currently being received is going to continue. In order to do so, they will want to assess factors such as your experience in your industry, your history of contracting, the length of the current contract and the likelihood of it being renewed. Lenders offering mortgages to contractors will each have their own criteria in line with this, and that is where it can get quite complex.
If you are new to the world of flexible working, welcome. No more getting shouted at for being 5 minutes late by a boss full of their own self-importance.
Even at this very early stage of your contracting journey, you are now able to be considered by certain lenders. These lenders would be able to consider you on your first contract as long as you have a minimum of 6 months remaining on a contract with at least a 2-year uninterrupted history in the same line of work, be that on a full time employed basis or otherwise. There is often a minimum daily rate requirement when it comes to mortgages for contractors, unless you can be regarded as an IT Contractor where no such minimum rate applies. Once you have 6 months of contracting experience and if you have a further 6 months remaining on a contract, or can evidence an extension to cover this time the minimum daily rate can potentially be waived for all other professions.
Once you have at least 2 years history of working on fixed-term contracts in the given industry, a much greater number of lenders will be able to consider your application. These lenders will want to have seen contracts renewed previously, whether this has been on a 3-, 6- or 12-month rolling basis and at least 6 – 12 months remaining on the existing contract, although as low as 3 months can be considered on a case by case basis. Once they have comfort that this criteria has been satisfied they will then look to assess the lending amounts available. With 2 years’ experience, the requirement for a minimum daily rate will be far more relaxed.
A typical approach to lending multiples is to look at your daily rate, not including VAT, multiply this by 5 to give a weekly rate and then multiply this weekly rate by between 46 and 48 to allow for small gaps in employment and breaks for holidays. This will provide a lender with the ‘targetable’ annual income to assess affordability and the application.
Mortgages for the self-employed and freelancers are an alternative option for experienced freelancers/contractors working on a gross pay basis. After you have been working as a contractor/freelancer for a good length of time, typically 2 years +, and assuming you are responsible for paying your own tax, a whole new host of lenders will become available to you as you can now be regarded as truly “Self-Employed”. The vast majority of lenders are happy to lend to self-employed applicants, working as a sole trader or as a director of a limited company, as long as you can demonstrate earnings through two- or three-years’ accounts, SA302’s and associated tax calculations which you can obtain online from your HMRC Account.
When assessing Self-Employed income different lenders may take into account different things. Some will take only the Net Profit Before Tax figure, some will look to assess the Directors Remuneration/Salary plus Dividends into account. Others may look at retained profits and cash in the business. A good mortgage broker can review business accounts, select the most appropriate lender for your situation and advise the best options and lending limits accordingly.
Many banks and building societies are more than happy to lend to contractors, self-employed and freelancers, from those right at the start of the journey through to more experienced, long-term contractors and business owners. The key is to identify the most appropriate lender and structure the right approach, which of course is best achieved working alongside an experienced, professional mortgage broker well versed in the requirements of contractors and freelancers.
Call our specialist contractor and freelancer mortgage advisors now on 020 7220 5110.
Looking for a joint mortgage with a freelancer or contractor? If you’re in this position then fear not! There are many lenders willing to lend to the self-employed and contractors, especially when combining your earnings with a PAYE earner. When applying for a mortgage with a PAYE earner it can increase the total you can borrow or make your application smoother and more appealing to lenders.
As a PAYE earner lenders will generally require the last three months’ payslips and for the self employees person, you will need two or three years’ accounts, SA302 and associated tax calculations. These can be obtained online from your HMRC Account.
The amount you can borrow on your joint mortgage will depend on the usual criteria such as:
Our team of brokers have many years of experience in working with freelancers and contractors. Get in touch with our team with any questions you have.
There are lots you can do as a freelancer or contractor to improve the chances of getting your application approved quickly or to help you increase the amount you can borrow, these include:
Lenders need to work out how much you earn before they decide how much they are willing to lend to you. Some lenders will average out your yearly earnings over the past 2 to 3 years, others may choose the most recent rate you’re earning or the lowest rate you earn. If you have a day rate some lenders may calculate this out over a year to get an understanding of your earnings.
Using a certified or chartered accountant to prepare your books when making a mortgage application is a vital step as some lenders won’t accept accounts that haven’t been signed off (unless these are documents already submitted to HMRC).
If you’re thinking about applying for a mortgage in the near future it’s well worth talking to your accountant. Chances are your accountant is working their magic to reduce your tax bill however this can backfire when applying for a mortgage as it can involve minimising your income.
Taking time off when you want is one of the perks of being a freelancer or contractor. When it comes to applying for your mortgage it’s best to avoid too many gaps in the year up to applying for your mortgage. If you have lots of gaps in your recent income lenders will view your income as less reliable and therefore reduce the amount they’re willing to lend.
Repeat business and long term contracts both show lenders that you have a regular business which will relieve some of their anxiety around what could be uncertain income. This could be shown in the form of long term contracts with customers or repeat customers coming back to you on a regular basis.
While not something specific to the self-employed or contractors, it’s always worth checking your credit history and seeing if there is anything that needs addressing or anything that you can quickly improve.
The more money you have to borrow the riskier you are in the lender’s eyes if they have to recoup the cost. The bigger your deposit the lower your LTV (loan to value) which means it is more likely that lenders will accept your application.
Some lenders use automated systems to approve or deny mortgage applications. As a freelancer with a more complicated income, this automated process can end up working against you. If you have a choice of lenders it can be worth asking if they offer a manual underwriting option. At Coreco we’re experts in working with lenders to get freelancers and contractors accepted.
Seeking out a specialist lender will make it easier to be accepted as they will be set up to manage more complicated income streams and working patterns. You can also work with a specialist broker such as us! We know what requirements lenders look for, including high street lenders, and how to set up your mortgage application for the best chance of success.
Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured upon it.
A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances.
A typical fee is £495.
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