19 Oct 2022
For many years, it’s been notoriously difficult, expensive and time consuming obtaining a mortgage as a day rate contractor – or so it seemed!
Once upon a time Contractor Mortgages were very difficult to have approved. Initially, only certain brokers were able to assist with a small pool of lenders. However, in recent years, the market has evolved, and many more lenders have become comfortable with the way a contractor is remunerated making Contractor Mortgages far more accessible.
Over the years we’ve worked with countless contractor clients and yes, there are some scenarios which may be challenging, however most of the time, it’s about the broker’s knowledge as opposed to your income being the challenge. It is true that going directly to a bank to obtain a mortgage as a Contractor will be difficult, simply because of a lack of understanding of the contractor lending policies that are in place.
Since the introduction of IR35, some may argue that Contractor Mortgages have got harder to place. We disagree! We only saw one lender exit the market who no longer lend based on the Contract rate and, this was more down to COVID than anything else!
We did see some lenders adjust their lending criteria when IR35 was implemented to account for the additional costs involved when working through an umbrella company however there are also many lenders who did not. When operating via an Umbrella Company, some lenders will apply a slight ‘haircut’ off the gross annual income to account for Umbrella Costs, Employers NI and Apprenticeship Levy commonly found on payslips. This may lead to a slightly smaller borrowing amount, but only because the income being proved is slightly lower and nothing to do with the client being a Contractor themselves. Similarly, to contractors still working outside of IR35, there are still lending options that will work with the gross annualised day rate too.
Are Contractors deemed ‘higher risk’ to a lender?
With most of the larger lenders, no. They are treated in the same risk category as a permanent member of staff, providing there is a track record of Contracting and the Contractor meets the lenders minimum criteria. Of course, every lender has a different set of lending rules so what they ask for may vary. That’s where a reputable broker with the correct knowledge of the market comes in.
There are some occasions where it may be deemed slightly higher risk, such as significant gaps in contracts, limited contracting experience or a short length of time left on a contract – this does not make it impossible to obtain a mortgage.
Do I pay a higher interest rate as a Contractor?
This has been a question that’s been asked for many years and the simple answer is no. You will not pay a higher interest rate if you are a Contractor. The interest rates offered are the same as any other employment type (unless a lender has a specific set of products for different employments). The only drawback, not EVERY lender in the market offers mortgages based on a Contract rate, therefore the options may be slightly reduced. However, as we mentioned earlier on, they are more accessible now than ever before.
Adam Connely of Connely Roberts commented: “Having worked in the contractor space for 7 years, I’ve definitely seen the market evolve over time and many more lenders understand that Contractors pose a very low risk of defaulting on mortgages, despite the short-term nature of their roles. It’s very fair to say that Contractor Mortgages are no longer as niche as they once were. That’s why here at Connely Roberts, we want to demonstrate that to any Contractor out there.”
We have specialised in obtaining mortgages for Contractors for nearly 7 years and have extensive knowledge of that part of the market, each lenders criteria and what to look out for.
Contact us today to find out what your mortgage options are as a Contractor on 01252 214044 or firstname.lastname@example.org
*your home may be repossessed if you do not keep up the repayments on your mortgage.
19 Oct 2022
23 May 2023