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Are There Specific Mortgages For IT Contractors?
Mortgage products are not usually created to accommodate individual career types, so you won’t need to look for anything so specific. There are, however, Mortgage Lenders who are happy to accept applications from Contractors in general, as well as those who are not. High street lenders are usually less accommodating than specialist lenders, so it’s important to seek advice about which lenders will be best for you.
Whilst more traditional lenders can view Contractor income as less stable, despite the high pay synonymous with IT Contracting, whether you are operating independently, through a Limited Company or an Umbrella Company, there will be lenders who can help you.
How Will My Income Be Assessed?
Not all lenders are willing to consider the full range of potential income types that you may receive as an IT Contractor, which is why when you apply for a mortgage, it’s critical to source a lender who is suited to your specific method of earning.
If you work independently, you will be considered a Sole Trader when assessed, which means that the majority of lenders will use your tax calculations and HMRC tax overviews in their evaluation.
If you are trading under your own Limited Company, again, tax records are commonly used to assess your income, however, there are lenders who are also willing to consider your net profits, which can give you access to larger borrowing.
Those Contractors with a standardised day rate will be treated as Sole Traders by some lenders, however, others will consider an annualised version of your contract rate, which is more in line with how PAYE income is calculated.
It’s also fairly common for IT Contractors, particularly those in public sector roles, to operate under an Umbrella Company. Those lenders who are happy to consider this form of income will usually treat your pay as employed income. This is not always the most advantageous method for those on a statutory daily rate, if bonuses and other forms of income do not appear on your payslips, as usually lenders will only use the payslip data in their calculations.
How Do I Prove My Income/What Documents Will I Need?
The proof of income required to secure a mortgage will depend on how your income is being assessed by the individual lender.
Sole Traders and Limited Company Directors will need to supply accounts and tax calculations to cover around two to three trading years, unless you are being assessed based on your day rate. In this case, evidence of your confirmed rate and an ongoing contractual obligation of at least one year is usually required.
If you are paid via an Umbrella Company who pay the tax and National Insurance on your behalf then a lender would need to see your income evidenced by a P60 or HMRC Annual Tax Year Overview, payslips and bank statements. This would ideally also come with a track record of Umbrella Company income over the past two years and potential income forecast for the forthcoming year. If you current contract has less than six months remaining then a lender would look for a track record within the same line of work.
Mortgage Lenders each have their own requirements which can vary widely, so it’s possible that more documents will be requested in some circumstances. Other possible supporting documents may be bank statements, evidence of ongoing contract availability, future business plans or evidence of qualifications and extended employment history in your current industry.
We can tailor our advice to cover this information, once we’ve found the lender who will offer you the greatest benefits.
How Much Can I Borrow As A Contractor?
Mortgage loans are based upon affordability and credit score of the applicant, regardless of their employment type. A typical borrower can expect an offer of around three to five times their annual income calculated up to a maximum of a weekly rate x 48.
The stability and overall level of your income, as well as your outgoings and your credit status will all be considered, when deciding which multiple of your income you can borrow.
Offering more than the minimum deposit can be beneficial, particularly to those working as a Contractor, as this can balance shorter trading history or adverse credit. It also increases the availability of competitive rates.
How Can A Mortgage Broker Help?
Although it’s perfectly possible to secure a mortgage as an IT Contractor, the application process can be complex, owing to the number of different trading or pay types that you may have. At First Step, we understand the intricacies of IT Contracting and can help you to find a Mortgage Lender who will maximise the potential of your income through the use of assessment methods that are most suited to you.
We use a wide pool of lenders who specialise in Contractor Mortgages, to find you competitive interest rates. We can also enhance the efficiency and reduce the timescale of your mortgage application by helping you to prepare your application and the necessary documentation in advance.
Your home may be repossessed if you do not keep up repayments on a mortgage.