Have you ever applied for a contractor mortgage whilst working freelance?
Historically lenders have penalised contractors when it comes to sourcing a mortgage. This is because most lenders have a simplistic view of what qualifies as earnings for borrowing purposes.
Contractor mortgages and limited companies
Contractors working through a limited company are assessed on salary and dividend drawings. For tax reasons, many contractors working through a limited company will draw a minimum salary and also restrict dividend payments to avoid higher rate tax.
Although this is a perfectly reasonable tax planning strategy it also has the unintended consequence of reducing the amount a contractor is eligible to borrow under the standard criteria used by most mortgage lenders.
Contractor mortgages and a specialist broker
A specialist contractor mortgage broker will usually present the contractor's application to senior underwriters so that the full earnings potential is taken into account - including earnings which are not paid out but retained within the company for tax planning purposes.
A good broker will find the most approproate mortgage provider for you, one who will make you a mortgage offer based on your contractor rates (up to 4-5 times annualised contractor rate) and will not require 2-3 years accounts, like most conventional lenders.
Choosing a good mortgage broker is essential in today's current financial climate. A specialist contractor mortgage adviser can save you the hassle of dealing with high street lenders who are unfamiliar with the contracting market. This is increasingly important in the current financial climate as lenders are tightening lending criteria and this trend is predicted to continue with the scheduled introduction of increased regulation.
Many contractors have also been let down by non-specialist brokers who have approached the wrong lender or poorly packaged the application. Each failed application leaves a footprint on an applicant's credit record, this makes the next application more difficult and it is therefore essential to get it right from the start.
Contractors should not settle for self-cert mortgages with expensive charges and high interest rates. Avoid brokers and lenders who place restrictions on contractors because they are not prepared to assess you on your annualised contractor rate.
If you wish to be contacted about contractor mortgages, please request a call back from one of our financial advisors.
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Image: "That was easy" by Jason Gulledge