Contractor Mortgage FAQs
ContractorUK has teamed up with Freelancer Financials to bring you bespoke contractor mortgage products tailored to the way you work. As specialist providers of invaluable industry insight and helpful advice since 2004, we thought it a good idea to put our most frequently asked mortgage-related questions to John and his team of experienced advisers.
Q. What makes Freelancer Financials so different from other mortgage advisers?
A. Freelancer Financials specialises in mortgages for independent professionals from all walks of life. By focusing on one niche (albeit quite broad), we excel in securing competitive and relevant mortgage deals for contractors, directors, freelancers and sole traders alike.
This is quite the opposite treatment you'd likely receive if you approached a generic financial adviser or residential mortgage provider. Those who don't specialise lose critical information about your income in translation. They don’t understand your work situation, are instilled with unhelpful and outdated preconceptions of the role of a contractor today, and aren’t always motivated to get you the best possible deal.
In order to ensure we satisfy all of our clients, we focus on what we know we do best: when it comes to contractor mortgages and financial advice, we offering a highly-specialised and, in our opinion, unsurpassed service to independents.
Q. How much can I borrow?
A. There's a general rule of thumb in our industry that states contractors can borrow 4½ times their contract rate. But exactly how much any one individual can borrow will ultimately depend on their specific circumstances. Criteria lenders take into account include:
- your contract rate and/or your annual income;
- how much deposit you've saved;
- how long you've been contracting in your given industry, and any risk assigned to that industry*;
- how many dependents you may (or may not) have;
- other financial commitments/disposable income;
- your credit rating.
Freelancer Financials works with both traditional ‘high street’ lenders and independent mortgage providers to give contractors the best possible choice.
But because we have developed relationships with underwriting teams, we bypass the gatekeepers, those in-branch and call centre advisors who do not understand contracting. This means we can secure you a better deal by availing you of terms and offers that you'd otherwise find inaccessible.
Q. Can I get a mortgage agreed in principle before I buy?
A. Yes, Freelancer Financials can secure contractors their agreement in principle (or decision in principle) based on their contract rate alone. Because we use 'contractor-friendly' lenders, the process often takes minutes rather than hours.
It's important to note that an AIP is not a mortgage offer. But it is a guarantee independent of you supplying your account information or financial records, and will help prevent the lender backing out at the last moment.
Armed with your AIP, you’ll find yourself in a much stronger negotiating position. In addition to this lender's affirmation of your credentials, Freelancer Financials will also happily verify with the seller or estate agent that you are a financially viable buyer.
Q. Will I have to pay higher interest rates because I am a contractor?
A. Being a contractor in and of itself will not make you subject to higher interest rates. In the past, lenders would class people working short-term contracts as 'non-status' or high-risk borrowers. As a result, contractors would have had to put down higher deposits and borrowed at uncompetitive interest rates, with niche mortgage lenders their only option.
We have spent years negotiating at the highest level, with senior underwriting teams, often helping them shape their contractor-friendly mortgage criteria. The result is a fairer deal for independent professionals. But it's key to note that most of the deals we can offer you won't find at High Street level. You are a specialist borrower, thus more often than not need to go through the broker who negotiated those criteria to access them.
Q. Do I need a deposit?
A. All homebuyers need a deposit, irrespective of how they work. Currently, the rule of thumb is the higher the deposit the better. Lenders will only consider borrowers able to find a 15-25% deposit**. However, this isn’t a reflection on your status as a contractor. Instead, it’s an industry wide trend.
**Since the pandemic, lenders have tried to reintroduce 10% deposit mortgages, but have withdrawn them just as quickly. A combination of backlog, demand and falling house prices has made 90% LTV mortgages extremely difficult to find. There is no guarantee when low-deposit mortgages will return with confidence, but in order to access better interest rates, we would advise finding a minimum of 15% deposit anyway.
More on deposits as restrictions ease and the market settles; in the meantime, talk to your broker about options. Switching with the same lender or going onto an interest only mortgage could work if you're wary of slipping onto your lender's SVR.
Q. How long do I need to have been contracting?
A. Under normal circumstances, we can get contractors a mortgage within a week of starting their first contract. But, since COVID-19 hit our shores, we think lenders will add more elements to their contractor lending criteria.
*One such element we think will be the 'risk' associated with the industry in which you work. For self-employed people working as sole traders, 2-3 years' accounts is the least time trading to get a mortgage.
For contractors, both work history and the time-served industry will play a part, moving. It is essential you speak to a broker, I mean really talk to them, to find a lender whose criteria matches your status. I can't stress that highly enough.
Q. How long do I need to have remaining on my contract?
A. In most cases, lenders will require 6-8 weeks left to run on your current contract. Depending upon your circumstances, there may be 'wiggle room'.
But by far the best option is to ask your client or agency for a contract extension or renewal. This helps reduce your 'risk', as well as indicating the projection of continual work within your industry.
Q. How long does the mortgage process take?
A. In normal times, 3-4 weeks is all the mortgage process takes; that's from the contractor submitting their application (through us) until mortgage completion.
However, we can make no such promises in the current climate. We ask all parties within any given chain to exercise patience whilst lenders catch up with their applications and valuations. If you're desperate to move, talk to us.
Q. What supporting documentation will I need to provide?
A. We would ordinarily just need a copy of your contract, CV, bank statements and ID. Make sure your CV is up to date and highlights the time you've spent in the industry you're currently working in. Also, both personal and bank statements will help lenders get a better picture of you. They could be the difference between application success and failure.
Q. Will I need accounts?
A. If you use a limited company payment structure, you shouldn't need your accounts, other than your most recent bank statements. Unlike generic advisers, we fully understand that you may not have three years' worth of accounts. In many situations, you will be able to access better mortgage deals using your top line contract rate.
That doesn't mean you can't use your accounts. If you have kept excellent accounts for several years, you can use them; this is often the preferred choice of company directors. This will get boring, but I'll say it again: we can help you decide on which basis you'll be best moving forward under the new normal, temporary as it may be.
Q. What costs will I need to cover?
A. There may be an arrangement fee in order to book a particular interest rate. Plus, there is often a broker fee for new mortgages. But if you're returning to us to switch your current deal, often, you incur no fee at all.
Q Will I have to accept costly loyalty clauses to secure a mortgage?
A. Freelancer Financials raison d'etre is to always secure the most competitive interest rate for your circumstances. Any schemes that don’t provide open and honest accounts of the full costs, we avoid.
In our experience, too many contractors have fallen for low headline-grabbing rates, only to have to endure long periods at higher rates, with penalties and additional charges to end the incentive period early.
Our competitive selection of deals offers you complete freedom to move your borrowing at any time where it makes sense to do so, or once your current rate is due to expire.
Q. What will happen to my mortgage rate after the initial scheme expires.
A. An important (but oft overlooked) part of our service is to follow up 3-4 months before your fixed introductory rate is set to expire. Our intention is to get you moved to a new mortgage so that you don't incur lenders' inflated SVR. We can readdress your circumstance and then compare deals from your current lender against mortgages available elsewhere in the market.
It's our devout wish that you only ever pay the most competitive interest rates throughout the life of your mortgage.
Q. Will I need to take out compulsory insurances with my mortgage?
A. In the spirit of transparency, we endeavour to ensure that there are no hidden shocks in the mortgage recommendations we make. To put it simply, deals that insist on the customer taking out uncompetitive home insurance or life cover with them we do not use.
However, as a registered independent financial adviser, it's part of our duty to ensure that you protect your debt. We are happy to provide no-obligation advice, including income and illness protections and life insurance.
Q. I want to move but can't or don't want to sell my current home.
A. By reversing the buy to let concept, Freelancer Financials can arrange a loan on your current property to finance the purchase of a new home. 'Let to buy' is an ideal solution if you're unable or don’t want to sell your current house but are looking to purchase a new property.
In order to make this work for you, it's essential that you talk to us first. We can identify any hidden pitfalls in your plan and recommend the mortgages and lenders that best match your intentions.
Q. I have an existing rental property. Can I release some of the profit made from my house?
A. Freelancer Financials can arrange a remortgage that allows you to switch to an alternative scheme. This could help your release some of the equity in your rental property.
Q. I have had a CCJ. Will this stop me from getting a mortgage?
A. Having a CCJ doesn't necessarily mean you can't get a mortgage. We have access to a range of 'impaired credit' schemes that will help get you to buy a property/move up the property ladder.
In our experience, that may mean incurring a higher interest rate than normal, all dependent upon the level of risk the lender applies to your unique circumstance.
ContractorUK are not authorised to offer regulated mortgage advice. ContractorUK are introducers to Freelancer Financials. Your home may be repossessed if you do not keep up repayments on your mortgage.
Financial advice is given by Freelancer Financials, which is a trading name of Mortgage Quest Ltd and is regulated and authorised by the Financial Conduct Authority (FCA). FCA registration number 312484.
