Why a contractor mortgage may be a better deal than a standard mortgage
Standard mortgages from high-street lenders tend to be restricted to salary plus any dividends, whilst contractor mortgages are based on a contract rate projected to a total earnings – with the tax planning option to draw a lower salary.
Consequently, a mortgage for a contractor may be preferable than standard mortgages as they may allow you to borrow substantially more money.
Why you should deal with a Contractor Mortgage Specialist
By dealing with a Contractor Mortgage Specialist, preferential deals can be obtained for contractors, such as:-
- competitive interest rates
- mortgages for new contractors, i.e. those with a short trading history
- less paperwork
- streamlined approval process
Contractor Mortgage Specialists also provide a validated, trusted service that’s in line with all financial regulations. Remember, it wasn’t too long ago unethical mortgage brokers were offering ‘Self Certification’ mortgages (where contractors could claim earnings by self-certifying whatever rate they wished, without any substantiation). Needless to say, Self Certification mortgages was outlawed by the FSA almost ten years ago because they contributed to the sub-prime mortgage epidemic, which led to the Credit Crunch of 2008.
How much you can typically borrow on a contract day rate
To estimate how much you can typical borrow:—
- multiply your current contract day by number of days worked, and then by 48 weeks.
- multiply this total by 5
This figure is the total you can generally expect, so a contractor earning £450/day could raise around £540,000 with a contractor mortgage.
How can I help my contractor mortgage application get approved and at the best deal?
Firstly, although 100% contractor mortgages are rare, if you can increase the deposit past 10% then the mortgage rates will be lower.
Secondly, ensure your contract shows at least 8 weeks remaining from date of mortgage application. Lenders like to see a minimum of two months guaranteed income, ideally 3-6 months.
Thirdly, have a decent trading history supported by audited accounts. Although some high-street lenders prefer to see 3 years worth of accounts, by using a Contractor Mortgage Specialist who can negotiate based on your contract, contract day rate and trading history your chance of approval is increased.
Fourthly, having a decent credit rating will increase your chance of approval and at a more competitive rating. The lower your credit score, the more likely your interest rate will be to increase as the range of contractor mortgage products will be reduced.
Finally, remember that it’s best to approach a Contractor Mortgage Specialist first, rather than a high-street lender. IF you apply through a high-street lender are refused, this will show on your credit rating and MAY decrease your chance of approval of a contractor mortgage.