A few years ago, IT contractors and freelancers traditionally had more trouble gaining favourable mortgage rates than their permanent counterparts. Lenders had a bias against workers and small business owners who found it harder to prove their income than permanent employees.
In more recent years, as lenders have become more ‘enlightened’, and have realised that small business owners are actually no more of a lending risk than ‘normal’ employees, many mortgage companies are happier than ever to lend to contractors, and have teams dedicated to servicing the non-traditional professional workforce.
As a result of the recession, self certification mortgages have been outlawed. This type of mortgage relied on the honesty of applicants to be able to afford to pay back loans based on the income they stated. As history has proved, many people abused the system and were unable to repay the loans.
Unfortunately, many small business owners (IT contractors included) still find it hard to prove their income, and the closure of the self cert route is definitely a impediment to the community.
Luckily, there are a number of specialist contractor accountants in the market who have built up relationships with lenders over time. Providing you have at least two years’ trading accounts, and self assessment statements, and can provide your current contract, you will be able to secure a mortgage based on your contract rate alone.
When looking for a contractor mortgage provider, you should always try to use a specialist firm rather than a high street name.
A contractor specialist will understand the nature of contract work, how contractors are paid, and the type of paperwork that is required from contractors to show lenders that they are low risk applicants.
If you are applying for a new mortgage, or even a remortgage, there are a number of things you will need to consider before applying for a mortgage.
Firstly, you must ensure that you can prove your income for the past two years, and if you have any black marks against your credit rating, that you can explain them and can show that they have been resolved.
Lenders will look at your accounts (or self assessment returns), and typically use the lower of the recent 2 years’ income levels when determining the multiples they are prepared to lend you.
To summarise: If you are looking to take out a contractor mortgage, make sure you use a mortgage company which specialises in the needs of contractors and freelancers. Make sure you can show proof of income for at least 2 years, and demonstrate that you are currently on contract, and earning the right rate to enable you to secure a mortgage loan. Most lenders will lend up to 4 or 5 times your income these days.
Good luck with your mortgage hunt!
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