If you have come here because you have been declined by a high street lender or are just starting your research into getting a mortgage as an IT contractor, you have come to the right place! A lot of self-employed and people with non-standard incomes have concerns about their ability to get a mortgage and whether they will get a good rate or end up paying high interest rates just because of their employment status. Unfortunately with some lenders that is the case especially with high street banks. They tend to have less willing to lend to contractors and people with complex income sources. Most high street banks get so many applications that they are choosier with them, they generally perceive people with permanent jobs to be lower risk. You may find if you apply or have applied to a high street lender you will be rejected due to income evidence.
Getting a mortgage as an IT contractor
One of the main reasons for the attitude toward self-employed lending is the perceived risk, if you have only been self-employed or a contractor for a short period of time there is more risk that in the future you won’t be able to manage your mortgage repayments. You may lose a big contract or something in your business may change. The longer you have been a contractor for the better as it will show a steady income stream. The lack of flexibility in the main stream banks in terms of assessing income for contractors is another negative. With rigid automated systems in place anything that falls out of the norm is seen as an increased risk.
While some banks may view IT contracts as higher risk there are lenders out there that understand the contractor market better. Really if you are a contractor you are likely getting paid better rates than a similarly experienced PAYE employee. Many IT contracts manage their finances carefully ensuring they have impeccable financial planning so they are safe if they have a gap in employment. The specialist lenders understand this and are more willing to consider applications from contracts and self-employed people.
There is some good news for contractors, with the increase in freelancers, contractors and self-employed the number of niche lenders has grown, the bigger the market gets the more competitive the interest rate. Mainstream lenders are also recognising the change in the UK, to ensure that they can stay competitive and retain their market share they are realising they need to change their processes to accommodate more complex income sources.
Which lenders accept IT Contractors?
Each lender has their own criteria which are frequently updated. Some lenders have specific products for contractors known as “contractor mortgages “. Other lenders are offering the same products to contractors and are incorporating more flexible underwriting critera, this allows them to be more flexible and assess income differently instead of using payslips. This means that there are lenders out there and as long as you can pass affordability and don’t have any bad credit you should be able to get the same products everyone else is able to choose from. Speaking with an experienced specialist advisor will give you all the information that you need and ensure you are putting your application to lenders that are more flexible with the way that they measure income.
Proving your income as an IT contractor
Today contractors and the self-employed need to provide evidence for their income. In the past contracts were able to declare their income without any evidence, these were called self-certification mortgages. They are now a think of the past and the FCA implemented new rules that require lenders to fully verify each application to ensure everyone that takes out a mortgage can afford it and will pass the affordability tests. Your circumstances will dictate how a lender will look at your income, again each lender has different ways of doing this depending on if you are a sole trade, partner or operating at a limited company.
A lot of lenders will assess your income as a contractor the same way they do with self-employed applicants. You will need to provide your full business accounts that have been certified from an accountant. The number of years accounts you will need to submit will vary from lender to lender but 3 years tends to be the average. There are lenders who will approve applications from people with only one year’s accounts but the majority will want to see a longer trading history than this. You may also be required to submit your SA302 form for your year end tax calculations. This form provides your total income so it is very useful to the lender in assessing your income.
If you have set up a limited company for your income to go into then lenders will usually take your income and any dividends into consideration when they are checking your affordability and deciding how much they will lend you. The disadvantage of this is if you are keeping profits within the limited company with some lenders this will not be taken into consideration which may mean the amount you are able to borrow will be smaller. Some specialist lenders realise that you may not want to take all of your income out of your business for tax purposes and also to keep cash within the business which is why some will include retained profits in there calculations. This can make a big difference on the amount you are able to borrow.
If you are running as a sole trader lenders will take a different approach to calculating your income. If you are on a day rate and usually work 5 days per week they will times your weekly income by 48 weeks to work out your yearly income, this takes into account potential gaps or holidays. The average you are usually able to borrow is 4 to 5 times your income this will depend on other factors such as adverse credit
We can help
At Get Me My Mortgage we have a network of experienced contractor mortgage brokers that know the market inside and out. Give us a call today on 0800 368 8879 or fill in one of our enquiry