buyers guide to contractor mortgages

Buyer’s Guide

to Contractor

Mortgages

ContractorMoneyIndependent Financial Advice for Contractors

A helping hand from...

A Buyer’s Guide to Contractor Mortgages

Fourteen years ago Contractor Money’s founder, Tony Harris, realised

first hand how difficult it was to obtain a mortgage as a Contractor

whilst working as the IFA for a Contractor Accountancy practice.

Tony decided to make it his business to do something about it,

so he started Contractor Money, now the UK’s largest Contractor

Mortgage Specialist, and set about changing the Lenders’ attitudes

to Contractors. He began negotiating contract based mortgage

schemes with some of the biggest banks and building societies on

the high street, and the Contractor Mortgage Industry was born.

Our Contractor Mortgages buyer’s guide is designed to help you buy

your new home or buy to let investment as quickly and smoothly as

possible, by giving you the information you need to avoid the pitfalls of applying for a mortgage as

a contractor. Instead you can take advantage of the wealth of knowledge we have as Contractor

Mortgage specialists by reading this guide.

2A Buyer’s Guide to Contractor Mortgages

Contents Page

1 Why do Contractors get Refused a Mortgage on the High Street? ......................................4

2 I’m a Contractor AND a First Time Buyer ............................................................................ 6

3 I’m Ready to Move up the Property Ladder ........................................................................ 7

4 Re-mortgaging for a Better Deal ......................................................................................... 8

5 Buy to Let Mortgages for Investment ................................................................................. 9

6 What is the “Help to Buy” Scheme? ................................................................................... 11

7 What Types of Mortgages are Available? ........................................................................... 14

8 How Much can you Borrow? ............................................................................................. 17

9 The Mortgage Process Explained ...................................................................................... 18

Why Choose Contractor Money? .......................................................................................10 19

Need Some Help with your Mortgage? Our Experts are on Hand Now ............................. 2111

3A Buyer’s Guide to Contractor Mortgages

Why do Contractors get Refused a

Mortgage on the High Street?

1

Traditional lenders (i.e. the high street banks and building

societies) are often wary of the perceived short-term

nature of contract work and even if they were prepared

to lend to you, most would use salary alone to determine

your maximum mortgage value. They don’t take into

account those all important dividends that normally

represent a significant proportion of a Contractor’s total

income.

Ironically, many underwriters in the central mortgage processing units of these institutions now

have sufficient understanding of the contracting world to be happy lending to Contractors, but

these mortgage applications rarely make it past the branch or call centre staff.

Gaps in their training as well as computer based credit scoring systems mean that they are

unfamiliar with, and not prepared for, the Contractor scenario. Contractors tend to fall outside of

their ‘standard script’ when it comes to proof of employment, proof of income and time employed,

thus resulting in many mortgage applications being refused before they have even been seen by

an underwriter.

So, Can I get a mortgage as a contractor?

The answer to this question is most definitely “yes”. Thankfully the days when self-employed

contractors had to present three years of accounts, or go down the expensive self-certification

route to determine what they could afford to borrow, are long gone. Nowadays, there are

Contractor-friendly lenders who will base mortgage size on multiples of your annualised contract

rate.

As a contractor you will need the help of a specialist Contractor Mortgage Broker to access the

same mortgage options and competitive rates available to salaried employees. When a specialist

broker or Financial Adviser acts as the intermediary between you and the lender, you can cut out

the high street branches or call centres that cause the problems.

4Why do Contractors Get Refused a Mortgage on the High Street?

A specialist broker will also influence the way that your application is presented to the underwriter

and in some cases the particular underwriter that your application is presented to.

By putting your mortgage in front of the right people, a specialist broker can ensure the success

of your mortgage application by presenting your case in the correct manner, and avoiding the

need for providing irrelevant HMRC documents.

5Why do Contractors Get Refused a Mortgage on the High Street?

As a fir

miscon

can be

a speci

as a Co

proces

Before

you sho

are, to

I’m a Contractor AND a First Time Buyer.2

st time buyer you may be put off by the

ception that getting a mortgage as a Contractor

difficult. Don’t be. The expert advice provided by

alist broker, which is specifically tailored to you

ntractor and a first time buyer, makes the whole

s very easy.

you start the process of buying your first home,

uld work out what your total monthly expenses

ensure you can afford the mortgage before

committing to the repayments.

With the help of a Contractor mortgage service you can also get onto the property ladder at a

competitive rate, which will help to keep your repayments at an affordable level.

How much can I borrow as a First Time Buyer?

Specially negotiated contract-based underwriting means that your eligibility is assessed based on

your contract rate alone. This often allows you to borrow more than your permanent colleagues,

which can be up to five times your annualised contract rate with some lenders. Your specialist

adviser will ensure you keep within a comfortable borrowing limit though, so you don’t overstretch

yourself at this early stage.

6I’m a Contractor AND a First Time Buyer.

3 I’m Ready to Move up the Property Ladder.

If you’re a contractor and you own your current home,

then chances are you bought it when you were still

employed. With a permanent job and a fixed income,

getting a mortgage back then was not a problem.

Since then, your life has moved on and as you are now

earning much more as a Contractor, you’ve decided it’s

time to take the next step up the ladder. Excited, you

contact your local bank to get your mortgage application

underway, only to hit a brick wall!

All of a sudden, the very same bank that provided you with a mortgage for your current house,

doesn’t want to know. All because you’re no longer employed and can’t prove your earnings with

6 months worth of payslips.

Frustrated, you’ve all but abandoned your plans for moving to that new home but there’s no need

to do that. With the help of a specialist Contractor mortgage adviser, you could get a mortgage

offer in principle within 48 hours and borrow up to 5x your annual contract income, all without

having to prove your income with 3 years of accounts.

In the first section of this guide (see ‘Why do Contractors get refused a mortgage on the high

street”) we explain exactly why you’re hitting that brick wall as a Contractor and how you can

easily get over that brick wall with the help of a specialist Contractor mortgage broker.

7I’m Ready to Move up the Property Ladder.

Re-mortgaging for a Better Deal.4

Once you have your mortgage and are settled in your home, a specialist contractor mortgage

adviser can help you to keep on top of the bewildering array of mortgage options when the time

comes to re-mortgage.

Most Contractor mortgage specialists will email you within 2 months of the expiry of your current

fixed/discounted rate scheme with a ‘no obligation’ recommendation on a competitive new deal.

They will look at what’s offered by your present lender first and then compare this with the wider

mortgage market to ensure you get a good rate.

Should your broker find a better deal with a lender other than your current provider they will aim to

ensure that the new lender pays towards any re-mortgage costs wherever possible.

Re-mortgaging to Release Capital

At the same time as aiming to save you money on your monthly mortgage payments, you may

also want to take advantage of any increase in the value of your home to raise capital. This could

help fund consolidation of expensive debts to further reduce monthly outgoings or provide monies

for investment, business ventures or a deposit on a rental property/second home.

8Re-mortgaging for a Better Deal.

5 Buy to Let Mor

Why Invest in Buy To Let?

tgages for Investment.

After shrugging off the credit crunch in 2008/9, ‘Buy to

Let’ investment has continued to grow in popularity. It

has proved to be a particular favourite amongst the UK’s

Contractor community with many Contractors investing

aggressively, building from an initial purchase to a whole

portfolio of properties.

With rental demand higher than ever and attractive

yields on offer in many areas of the UK it is easy to

understand why Buy to Let is so popular.

•

•

•

Unlike other investments, buy to let easily allows you to ‘gear’ any initial funds

Rental yields represent additional current income and a potential future pension

Exploit high demand from tenants unable to buy

How do you Secure Competitive Buy to Let Mortgage Rates?

Buy to let mortgages are available to Contractors as long as you have a good deposit to invest.

For instance, if you have a deposit of 25% or more then you can expect to gain access to some

very competitive mortgage rates, and your specialist mortgage broker will be able to show any

lender that your employment status is academic as long as the rental income is sufficient to cover

a margin above the mortgage repayments.

With this in mind our advice is to do your homework and choose the right property that has a

good rent yield.

9Buy to Let Mortgages for Investment.

3 Things to Consider when Buying a ‘Buy to Let’Property.

1. Think about who you will be renting to.

When deciding where and what to buy, you should consider the type of people that will be renting

in your chosen area. For instance, if you are hoping to rent to students then you will want to

choose a house that lends itself to multiple occupancy and is close to the university and nightlife.

Likewise, if you are hoping to rent to families with young children, then you will want to choose

a larger house that is close to schools, parks and includes features such as a dishwasher and

parking.

2. Too Busy to Find the Right Property? Let your Mortgage Specialist do the Searching

For You.

Some Contractor Mortgage specialists offer a property acquisition service which is available

to busy contractors who are looking to invest in Buy to Let but don’t have the time to search

for properties themselves. Expert buying agents will not only find the right property to suit the

rental market in your chosen area but will also handle the negotiations with the estate agents

on your behalf. By using both a Contractor mortgage service and Contractor Home Search, the

entire process of finding and purchasing your investment property will be completed quickly and

efficiently, with the minimum involvement from you.

3. Have a Contingency Fund.

As it is the landlord’s responsibility to rectify problems with the property, such as a broken boiler,

it is important to have a contingency fund saved so that you can cover any unexpected costs

that may arise. It is also essential that you have a comprehensive landlord insurance policy in

place to protect yourself against major structural damage or loss of rent if a tenant defaults and

we can help source a competitive scheme that fits your needs. If you’re too busy to take on the

responsibility then you can employ a letting agent to manage the property for you, who will act as

a go between for you and your tenants for a percentage of your rent each month.

‘Let to Buy’

If you are struggling to sell your home in the current market as you don’t want to accept a low

offer, but are still keen to move, then let to buy could offer you a quick and hassle free solution.

By switching your current property on to a buy to let mortgage and then renting it out, you will be

able to release money for the deposit on your new property. The lender on your new property is

then able to ignore the buy to let mortgage as it’s deemed to be self-funding. They can then apply

the full income multiplier to your contract based income, therefore maximising your borrowing

potential.

10Buy to Let Mortgages for Investment.

ative aimed

er or a

ble for those

cheme has

pril 2013

earlier than

sent the two

or purchasing

perties

of the purchase price towards the deposit plus a

What is the “Help to Buy” Scheme?6

“Help to Buy” is a Government backed initi

at making the first rung of the property ladd

subsequent movement up it, more accessi

struggling to save suitable deposits The s

been introduced in two phases (phase 1 in

and phase 2 in October 2013, three months

originally planned). These phases now

repre “Help to Buy” options potentially

available f a property up to the value of

£600,000.

1). Equity loan – available on new build pro

only, using a government equity loan of 20%

traditional mortgage of 75% LTV so the buyer only needs a 5% deposit.

2). Mortgage guarantee – available for new and pre-owned properties on a standard mortgage of

up to 95% of the purchase price. The Guarantee is arranged behind the scenes by the mortgage

Lender and won’t require any involvement from the buyer who simply needs a 5% deposit to put

down. The guarantee will only come in to play if the homeowner defaults on their mortgage so

acts as a safety net for the Lender. It will also be available on re-mortgages in the future so those

homeowners that are on a lender’s Standard Variable Rate (SVR), because they don’t have

enough equity in the property to re-mortgage to a competitive rate, will be able to save hundreds

of pounds a month on repayments by switching to a lower rate on the scheme.

11What is the “Help to Buy” Scheme?

Contractor ‘Help to Buy’Options At a Glance…


1. Equity Loan 2. Mortgage Guarantee

Age & location of property New Builds, in the UK New or pre-owned & in the UK

Value of property Up to £600,000 Up to £600,000

Minimum deposit required 5% 5%

Fees Interest free for 5 years then

interest at 1.75% of loan value,

increasing annually by the

Retail Price Index plus 1%.

Standard mortgage fees/early

redemption penalties may apply

No fee for the guarantee, this

fee is charged to the lender.

Standard mortgage fees/early

redemption penalties may apply

Available to First time buyers & existing

home owners

First time buyers and existing

home owners

Process Apply for mortgage in principle

& then apply for equity loan

Same as for a standard

mortgage

Borrowing from Equity loan from Homes

Community Agency (HCA) on

Government’s behalf PLUS

Standard mortgage from

Contractor Mortgage lender

Participating mortgage lenders:

• Halifax

• Lloyds banking group

• RBS brands

• Santander

• Barclays

Repayment type Monthly repayments on capital

repayment mortgage plus lump

sum for equity loan (see below)

Capital repayment mortgage

only

Repayment period Chosen repayment period for

capital repayment mortgage

plus 20% of house value to

be paid after 25 years or upon

sale, whichever is sooner

(subject to independent

valuation) for equity loan

Period of your chosen

mortgage term

Other eligibility criteria Must be your only property.

Property to be purchased from

a participating builder. Will be

assessed to ensure that you are

in need of Government help for

a deposit.

Must be your only property so

existing homeowners moving

up or down the ladder will need

to sell their old property.

The great news for contractors is that Contractor-friendly Halifax is one of the participating

lenders and has already launched their 95% mortgage under the Help to Buy Mortgage Guarantee

scheme.

Halifax use the contract based underwriting that we discussed earlier in this guide and they lead

the way in competitive products in the Contractor mortgage market.

Their Help to Buy Mortgage Guarantee product is as contractor friendly as the rest of their range

so Contractors can still borrow based on a multiple of their annualised contract rate alone, even at

a 95% LTV. The even better news is that this contract based lending is available to any Contractor

in any profession.

Halifax “Help to Buy” 95% mortgage at a glance

The amount you can borrow will obviously depend on your income and your credit score but if

you have a good credit profile then you should be able to apply for a loan of up to five times your

gross annualised contract rate.


Maximum Loan

to value (LTV)

Deposit required Interest rate Fees Property type

95% 5% 5.19% – fixed for

2 years

£999

arrangement

fee – this can

be added to the

mortgage

Available on

properties up to

£600,000 and

over two years

old

What Types of Mortgages are Available?7

What differenttypes of mortgages and interest rates are available to

Contractors?

It is fair to say that the myriad of different mortgages available can be confusing, particularly for

a first time buyer, but a good Contractor mortgage advisor will take the guess work out of finding

your ideal mortgage. They will search the entire market and then offer impartial, independent

advice to help you choose the one that best suits your individual needs.

With the help of your Contractor Mortgage Broker, you will need to decide how to structure your

monthly payments, either through a repayment mortgage or an interest only option, and whether

you want a fixed rate, tracker rate or a flexible offset mortgage, which offers the opportunity to put

your mortgage at the very heart of your finances.

Below is a summary of the different types of mortgages available and the main features of each

one.

Interest Only Mortgage

•

•

Rarely available post credit crunch but previously popular with first time buyers

The monthly payments are generally lower than repayment mortgages because you are only

clearing the interest each month

The original mortgage amount won’t change over the life of the term so if you don’t start to

make a dent on the loan amount by overpaying, or arrange a separate repayment vehicle to

clear the final debt, it can be more risky.

•

Capital Repayment Mortgage

•

•

Your monthly payments will cover both capital and interest

Your repayments will be structured to pay back your mortgage by the end of the term so

there is no need for a separate repayment vehicle

Good for Contractors who wish to overpay on your mortgage and clear the debt quicker.•

14What Types of Mortgages are Available?

Split Mortgage

•

•

Combines a repayment and interest only mortgage

Popular with first time buyers because the monthly payments are cheaper than on a

repayment mortgage

Less risky than an interest only mortgage because the loan is repaid over time.•

Flexible Mortgage

•

•

•

•

Very popular with Contractors

They allow you to over pay when you can and underpay when you need to

Interest is calculated daily so you will benefit immediately from overpayments

Payment holidays can be taken for when you are in between contracts.

Once you have decided on the type of mortgage you require, you will then need to look at how

you want your interest to be structured. The interest options available are listed below.

Fixed Rate

• The interest rate on the loan is fixed for a certain period, so your repayments remain equal

no matter what happens to the Bank of England base rate

Great if you need to know exactly what your repayments will be for a fixed period

Can be slightly higher rates than the tracker mortgages available but the added security of

the fixed repayments tend to appeal to first time buyers and Contractors on a tight budget.

•

•

Tracker Rate

•

•

Linked directly to the Bank of England base rate

You benefit from any falls in the base rate but are also at risk from any increases that would

affect your repayments

It is possible to access capped rate mortgages which work in the same way as a tracker

rate but are capped at an agreed level so that your repayments cannot rise above a certain

amount. This can be helpful if you are on a tight budget.

•


Offset

• Your debt is linked to your current account so you only pay interest on the balance between

the two

Popular with contractors as offset mortgages offer great flexibility

Enables you to lower interest rates on your mortgage with the money you hold in your

instant access and savings accounts without paying off a large sum.

•

•

Standard Variable Rate

• If you are already a homeowner and your fixed term has ended, you may be on your lenders

standard variable rate

This means the interest on your loan will be dictated by your lender, and will rise and fall in

relation to the base rate and the cost of borrowing

The standard variable rates offered by your lender are often much higher than those offered

on fixed, flexible or tracker rate mortgages

You can choose a mortgage with discounted rates which will be your lenders standard

variable rate discounted by an agreed amount.

•

•

•


How Much can you Borrow?8

Providing you have enlisted the help of a good specialist contractor mortgage adviser, you can

expect to borrow up to 5 times your annualised contract income.

For example, if your contract rate is £200 per day then your annualised contract income is

£48,000. Based on this it is possible you could borrow up to £240,000.

To find out exactly what you could borrow, simply use our

Free Mortgage Calculator at http://www.contractormoney.com.

17How Much can you Borrow?

http://www.contractormoney.com

The Mortgage Process Explained9

1. How Much can you Borrow?

As a guide you’ll typically be able to

achieve up to 5x your annualised contract

rate. Once you have an agreement in

principle (AIP), you can start looking for a

property.

2. Find the Right Property

Write yourself a list of criteria the right

property must have and then search the

property websites and contact local estate

agents.

3 4

5 6

5. Searches and Surveys

Your lender will want to make sure that the

property is a sound investment so they will

insist that certain surveys and searches are

carried out.

6. Receive your Mortgage Offer

Your lender will issue you with a formal

mortgage offer and will also contact your

solicitor to take the next step towards

completion.

7 8

9 10

9. Agree a Completion Date

Once you’ve agreed a completion date with

the Vendor, your mortgage processor will

notify the Lender to ensure funds are ready

for release on that date.

10. Complete and Move in!

On completion, you will receive a call from

your solicitor to let you know that the sale

has gone through. Congratulations! You

can now collect your keys and move in!

18The Mortgage Process Explained

1 2

3. Make an Offer 4. Submit your Application

Start lower than the level you think the Once your offer is accepted you need to

vendor will accept, you never know a act quickly, submit your application and

cheeky offer might be accepted, and you then find a solicitor. Your mortgage advisor

can always raise your offer if it isn’t. will liaise with the underwriter to ensure

everything runs smoothly.

7. Sign the Contracts 8. Exchange Contracts

Your solicitor will liaise with the Vendor’s Once both parties have signed the

solicitor to draw up the contracts and both contracts your solicitor will set an exchange

parties will need to sign them to agree the date with the Vendor’s solicitor. At this point

sale. you will need to pay your deposit to your

Solicitor.

Why Choose Contractor Money?10

Contractor Money is the UKs largest Contractor mortgage specialist. Today we are able to utilise

bespoke underwriting with our lenders, to offer you borrowing based on a multiple of your entire

contract earnings and not just the taxable element.

As the original Contractor specialist IFA, our firm

has been instrumental in changing the attitude of

the lenders towards contractors and negotiating

the contract based mortgage schemes available

in the UK today. As such we have uniquely strong

relationships within the mortgage processing

departments of the major lenders, so you benefit from our influence with key decision makers. We

will ensure that your application is put in front of underwriters within the lending institutions who

understand your unique employment status and appreciate that the demand for your skills is

high.

After a brief chat by phone or e-mail, we should be able to find you a competitive mortgage

regardless of how long you’ve been freelancing and even in the very first week of your contract.

We’ve helped over 22,000 Contractor clients secure a mortgage to either buy their first home,

move up the housing ladder or invest in a Buy to Let property!

Choose us and you will:

•

•

•

Get the home you want by being able to borrow up to 5x your annual contract income

Get access to “contractor friendly” lenders who understand your unique working status

Benefit from competitive “high street” rates you thought were only available to those in

permanent employment

Enjoy a comprehensive specialist service from initial consultation to completed mortgage

offer and beyond

Pay no fees! That’s right; we won’t charge you a penny for our advice or service saving you

over £500.

•

•

19Why Choose Contractor Money?

And if you’re looking for a buy to let investment:

• We can help you find the ideal property

• We aim to have your purchase sewn up within 4-8 weeks.

Above all you can expect our professional team to be with you every step of the way.

In short, we remove all the difficulties you face as a contractor. By avoiding the branch networks

of the mortgage providers and putting your application in front of the right people, we can ensure

the success of your mortgage application, avoiding the need for providing irrelevant HMRC

documents because we will have presented your case in the correct manner – as a professional

contractor who is eligible for bespoke underwriting for contractor mortgages rather than a limited

company director or employee.

We’re the sole financial expert to these Contractor specialist websites…

...and trusted advisers to clients of the UK’s best service providers.

20Why Choose Contractor Money?

Need Help with your Mortgage?11

We hope you’ve found this guide useful and informative, but you probably have some more

specific questions or queries that you’d like to discuss with someone? Or maybe you’re ready to

start looking for a mortgage and would like to know how much you can borrow? Whatever stage

you are at, we’d love to hear from you so we can help you secure the mortgage you need to make

your next step in your life.

Our team of experts are on hand now, so give us a call on 0845 066 8888 or visit the website

(http://www.contractormoney.com) to calculate how much you could borrow.

All the best,

The Contractor Money Team

Contractor Money

Gainsborough House

2 Sheen Road

Richmond

Surrey

TW9 1AE

Tel. 0845 066 8888

Fax. 0845 060 8888

Email. [email protected]

Web: www.contractormoney.com

21Need Help with your Mortgage?


mailto:[email protected]


ContractorMoneyIndependent Financial Advice for Contractors

Contractor Money

Gainsborough House

2 Sheen Road

Richmond

Surrey

TW9 1AE

Tel. 0845 066 8888

Fax. 0845 060 8888

Email. [email protected]

Web: www.contractormoney.com

mailto:[email protected]

http://www.contractormoney.com/

buyers guide to contractor mortgages

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