How to Get a Contractor Mortgage
Are you a self employed contractor looking for help with a mortgage? Read my handy guide which will explain what a contractor mortgage is, how to get one and what you can do to make sure you get the best contractor mortgage deal.
What is a Contractor Mortgage?
As a very loose rule of thumb, most mortgage lenders will lend around 4 to 4.5 times a person’s salary and when that person is employed (paying through the PAYE tax system) then the lender will base their decision on the employment contract so even if someone has just started a job it is possible to secure a mortgage based on the salary. For instance:
Mrs Jacobs is a teacher in a school in Oxford and earns £30,000 per year. Not taking into account any other factors she might be able to borrow up to £135,000 based on her salary even if she has just started in a new job.
But if someone is self employed then a lender will usually base their affordability calculations on their previous years’ accounts, usually an average of the last 2 years, meaning someone who does not have two years’ worth of accounts may struggle to find a mortgage (it is possible to get a mortgage with just one year’s accounts but the choice is limited somewhat).
But there is a grey area in between, as someone could be self employed and even pay themselves through a limited company but still be considered as employed for the purposes of a mortgage and that is when they are employed as a fixed term contractor. This means someone could have just started as a self employed contractor yet still secure a mortgage as if she were just starting a new job (although many conditions apply so this is certainly not the case in every instance).
How Do You Get a Contractor Mortgage?
If you are a contractor working on a fixed term contract and would like to take out a mortgage or a remortgage then I would strongly recommend you speak to mortgage broker in order to understand what your options are. Many factors come in to play and there are so many different banks with different lending criteria that an expert may be able to save you considerable amounts each month on mortgage payments.
The kind of things a broker will take into account are:
Length of time you have been contracted and how long you have left
Your previous work experience and whether it is in a similar capacity
Your credit history
Current level of credit and monthly commitments
Amount of deposit
Armed with this information it is then possible to work out whether a high street bank might be interested in loaning you the home loan (they have the most competitive interest rates) or whether you need to speak to a more specialist lender that may have higher interest rates but will be more flexible with regards to your contract status.
What If I Can’t Get a Contractor Mortgage?
If the contract you are employed on is not suitable for a contractor mortgage or you are not able to get one for some other reason then there may still be other options for you depending on your circumstances. For instance, you may be able to get a self employed mortgage if you have just one year’s accounts but we really would need to chat through your situation to let you know what choices you have.