Being a contractor allows you to be your own boss, but getting a mortgage as a contractor can prove difficult. After all, lenders want to know that you’re earning a stable income and afford repayments, and with your earnings being variable, it’s harder for them to know whether you’re a good risk.
In essence, lenders are looking for stability, and they’re accustomed to working with clients who have an employer. As with so many things, being the exception to the rule makes getting routine transactions done rather more difficult. However, Evolve CS assists with Mortgages for Contractors, making it easier for you to get the home loan you need without having to go through too much red tape.
In this article, we’ll examine the barriers that contractors face when applying for a mortgage, and the ways in which they can be overcome. We find that getting a mortgage for a contractor in the UK is by no means impossible, and though it may be a little more difficult than getting a mortgage as an employee, it still doesn’t have to be all that much of a slog with the right partners to support you.
Can Contractors Get a Mortgage?
Whether you are self-employed, sub-contracting, working through agencies, or working with umbrella companies, it’s not impossible to get a mortgage. Depending on the lender, your application can even be relatively easy. Six months of contracting history are enough to satisfy some lenders.
However, it should be remembered that mortgages come at a cost, and the greater the perceived risk, the higher the cost will be. So, your question regarding mortgages should go beyond “Can I get a mortgage as a contractor?” to encompass the actual cost of credit. And since mortgages are a long-term commitment, cost becomes an important consideration.
Before we draw any conclusions, let’s look at a basic FAQ.
What are the Lending Criteria for Contractors?
As we mentioned earlier, lenders are looking for stability. To determine this, they may look at your average income over a number of years, and they’ll often use your “worst” year as a baseline. They may also look at your average daily rate, but they’ll also want to know how many weeks you work every year – those gaps between contracts will be taken into account. However, if they can see a clear pattern, they’ll usually be happy to use that as a means of assessing your annual income and eligibility for a mortgage.
How much a contractor can borrow on a mortgage will naturally be defined by the income your lender expects you to earn, and they will base this amount on your bad months and years rather than your best ones.
What if you contract under a limited company? Unfortunately, that doesn’t really give you an advantage over the self-employed. To all intents and purposes, most lenders will see this kind of arrangement as being tantamount to being self-employed, and the same criteria would apply. Applicants earning a set “day-rate” will also be evaluated as self-employed, and your earnings history will be the key to gaining approval for a mortgage.
What Documents Do I Need to Get a Mortgage as a Contractor?
When applying for a mortgage, having the relevant documentation at hand saves you time and effort. After all, you’re busy! There’s no point in dealing with a lender several times if once will do. Speed the process by having the relevant documents handy.
Your lender will want bank statements, invoices, SA302 tax calculations, and possibly even a CV detailing your qualifications, experience, and standard daily rate. If you’re working through an umbrella company, payslips will do, but do ensure that your umbrella company provides payslips that will make sense from a banking perspective. They’ll want to see correct tax calculations and a clearly defined net income.
Evolve CS prides itself in being an umbrella company that takes care of its contractors, and our payslips and mode of operations, are designed to accurately reflect your earnings. Not all umbrella companies can claim to do this, and while an inflated estimate of earnings can look good on paper, lenders know how to spot this.
Tips for Getting a Mortgage as a Contractor
In order to stand the best chance of getting the mortgage you need, maintain a good credit score. That means meeting your financial obligations reliably. If possible, be willing to pay a higher deposit than most people do. It shows you have the wherewithal to afford a loan and decreases the amount you’ll need to repay.
Since paperwork is a must, be sure that yours is up to date. That’s easy when you’re using an umbrella company to handle your financials and admin – harder if you’re a loner. Consider working through Evolve CS to ensure you’re on top of things and ready to apply.
Do try to maintain continuous work with one contract seamlessly following the other unless it’s time for your holiday. Even the starchiest lenders are willing to concede that you need one! And do your homework. Mortgage products from different lenders can differ substantially. While you’re at it, find out whether your lender will accept overpayments during your busiest times to tide you over during leaner months and help you to pay off your mortgage faster.
Finally, scrutinise all fees and charges you may be liable for. They all add up, and you’re not only looking for a deal, but a good one!
The Easiest Way to Get a Good Mortgage Deal
Shopping around for a favourable mortgage offer, and getting approval for a mortgage, can be a time-consuming business. As an umbrella company that takes care of its contractors, Evolve CS does much to help in the mortgage application and approval process.
This covers ensuring that you have an employment contract citing Evolve CS as your employer, ensuring that your payslips will not raise questions with lenders, and working with lending partners who understand contractors and with whom we have long-standing relationships.
With Evolve CS, you’re still your own boss, but you enjoy gold-standard access to mortgages. It’s easier than seeking one as a person who is solely self-employed, and though it’s a trifle trickier than it is for regular employees, our focus on the welfare of contractors makes it easier to get a mortgage than you might have thought. Want to know more? Contact us to discover the benefits we can offer.