Professional contractors face real challenges when looking for mortgages via conventional routes. In this article, we identify the barriers that prevent contractors getting the mortgages they deserve, and show you how our specialist mortgage partner Freelancer Financials can help.
Who are limited company contractor mortgages for?
If you’re an independent professional using a limited company or Personal Services Company (PSC) payment structure to work fixed-term contracts, this is for you.
Why do high street lenders struggle with contractor mortgages?
High street banks and building societies don’t have the systems or training in place for their staff and underwriters to process mortgage applications from contractors working through a limited company. This causes a long list of issues, such as:
1. Misunderstanding of contractor income:
Many high street lenders focus solely on salary and dividends drawn from the limited company, failing to recognise the full earning potential of contractors.
2. Lack of specialised underwriting:
Traditional lenders typically don’t have contract-based underwriting processes in place, which are essential for accurately assessing a contractor’s income and affordability.
3. Reliance on traditional accounts:
High street lenders often rely on traditional accounts and self-employed criteria, which don’t accurately reflect a contractor’s true earning capacity.
4. Perception of high risk
Contractors are sometimes viewed as high-risk borrowers due to the nature of their work, leading to rejected applications or unfavourable terms.
5. Inability to assess umbrella company payslips:
Many lenders struggle to interpret the complex pay structures often used by contractors, particularly those working through umbrella companies.
6. Limited understanding of contracting work:
High street lenders may not fully grasp the nature of contracting work, including the use of fixed-term contracts and the stability of income in certain industries.
7. Inflexible lending criteria:
Traditional lenders often have rigid lending criteria that don’t accommodate the unique financial situations of contractors.
8. Lack of access to specialist underwriting teams:
Unlike specialist brokers, high street lenders may not have dedicated teams familiar with contractor mortgages and their specific requirements.
These factors combined often result in contractors being underestimated in terms of their borrowing potential or facing outright rejection when applying for mortgages through traditional high street lenders.
The solution? Contract-based underwriting
Instead of using your accounts, our mortgage partners Freelancer Financials use your gross contract day rate to prove your mortgage affordability. This method is called contract-based underwriting. It can secure you a much larger home loan than traditional self-employed criteria, which most high street lenders would use.
How much can you borrow based on your day rate alone?
The contractor mortgage process is so simple, you’d think all providers would use it. But, as far as most lenders go, contractor mortgages are still specialist loans. So, here’s how Freelancer Financials work out what you can borrow:
Take your contract day rate, annualise it, then multiply it by five. Try it with your own day rate using our mortgage calculator:
Use this figure as a guide to what a lender might offer you. If you have impaired credit, a small deposit or are new to your industry, the offer might be less.
If you’re further along the process and need a full mortgage quote, use our contractor mortgage search engine:
