What documents are needed for a contractor mortgage?

As a limited company contractor, you no doubt enjoy the autonomy that your independence permits.

But when it comes to finances, you know that your accountant warrants an invite to the top table at your wedding!

It should be the same when it comes to your mortgage, writes John Yerou, CEO of Freelancer Financials.

Yes, you could probably muddle along and get something on the high street. But the eventual mortgage offer you'll get (or not) will in no way reflect your income as a contractor. So you better put a mortgage broker on your big day’s guest-list too!

In fact, wander into your high street branch or ring them up and often untrained call centre agents or in-branch advisers will try to appraise your mortgage affordability in the same way they would a sole trader:

• SA302s,
• reams of accounts, and;
• 2- to 3-years’ worth of everything.

Based on that, any offer they make to you would be an insult!

Mainstream mortgage lenders rarely go off retained profits

Therein lies the problem: mainstream lenders rarely use any retained profits you're holding in your business to work out your mortgage affordability.

Or, if you hand over your umbrella payslips, you might think the data contained therein had morphed into unfathomable code!

Let’s now dive into the essential documents contractors need to give their mortgage application the best possible chance of success.

1. Proof of Employment:

If the call centre agent or in-branch adviser starts asking for payslips, accounts or SA302s, thank them for their time and make a sharp exit.

For the underwriting teams with whom we work (more often than not at lenders' head offices), the only figure that's important is your day rate.

They use your day rate as the first step in the contract-based underwriting process. To evidence what you earn per day, you'll need:

• Copy of your contract:
  • whether you work with your client direct, through an agency or an umbrella company, dig out the signed copy of your current contract and assignment schedule;
• Contract extension:
  • if your contract only has 4-6 weeks or fewer left to run, it's likely the lender will ask for a contract extension;
  • clients and agencies are often obliging when you explain that it’s for your mortgage application;
• CV (Curriculum Vitae):
  • lenders want to see that you've got relevant history in the trade you're currently contracting in; so ensure your CV is up-to-date.

2. Evidence of Income:

Having a contract is one thing. Ensuring that you're earning what your contract states is another.

When lenders work out your mortgage affordability, they "annualise" your day rate. Depending on the lender, they'll use either 46 or 48 weeks as the annualiser multiplier.

Income history that both matches your contract rate and validates their faith in you is über-important:*

• Bank statements:
  • underwriters like to see three (or sometimes six) months' worth of personal statements;
  • some lenders also ask for the same amount of business bank statements.

2a. * Day 1 contractors

In theory, contractors with perfect credit and sound work history in the trade in which they've just begun contracting can get a mortgage using their contract rate from the first day they begin contracting.

A strong CV with uninterrupted work history is essential to get you over that line. Alongside perfect credit, your up-to-date CV and personal bank statements to assess your suitability are, therefore, minimum requirements.

3. Proof of Identity and Address:

Underwriters need evidence of your current address and your identity.

They're often just a formality, but are nonetheless key to you securing a mortgage (or any credit). You'll need one of these for your identity, one for your address:

• Valid Passport or National ID:
  • either of these government-issued IDs will verify your identity;
• Driving Licence:
  • a current, valid driving licence with your photo on it will suffice, too;
• Utility Bills:
  • recent utility bills (gas, electricity, water) or council tax statements will confirm your current residential address;
  • even if you only receive these digitally, you still need to provide them;
• Proof of Residency:
  • if you're a non-UK resident, you'll need to provide your visa or residency permit to prove that you qualify for a mortgage in the UK.

It’s good to talk (and with a broker, a chat can make all the difference)

Every lender has contractor mortgage lending criteria unique to them.

Similarly, every contractor's individual circumstances, hopes and aspirations are particular to them.

Once you've got the basic documents together, talk to a mortgage broker before you approach a lender. And just so you are aware -- our brokers are trained to really 'get' you. By having an initial (totally free) consultation, you might reveal something unique about yourself that our experts think will further support your application.

Getting these documents together will make a great first impression on any contractor-friendly lender. We can't stress how important that is when you have non-standard income. If you’re still worried that your income is too leftfield, reach out to us. If not and you’ve got this, good luck with your contractor mortgage application!

Editor's note: To find out more about contractor mortgages and how Freelancer Financials can help click here.