How I Got a Mortgage as a Contractor…Eventually

When you consider that contractors earn more than permanent employees, you’d think that getting a mortgage would be easy right? Wrong!

After a long, drawn out process, I finally managed to get a mortgage through a contractor mortgage broker, but it wasn’t easy.

So to save other self-employed lots of hassle, I thought I’d spend some time explaining how to actually go about getting a mortgage when you don’t have a 9 to 5 job like most normal people.

High Street Banks

On the whole, walking into a high street bank and asking about a contractor mortgage is a bad idea. Not only will the member of staff you’re talking to probably not have a clue what you’re talking about, because they’re trained to deal with people who have a regular income, if they are versed in contractor mortgages, the rates probably won’t be very good ones.

This is because most high street banks will only lend you money based on percentage, times your salary, plus your dividends.

For tax reasons, a lot of contractors who are working through their own limited company will be investing most of their earnings into their company, rather than paying themselves a large salary, which they would have to pay tax on. As a result, because a contractor’s salary is low compared to their actual earnings, this makes it it’s difficult for contractors to get the mortgage they want.

I fell into this category. So what I really wanted was to find a lender who calculates mortgages on daily rates or gross revenue instead.

Contractor Mortgage Brokers

After some searching around online, I called up contractor mortgages made easy and they lived up to their name by showing me their best deals.

The benefit of going through a broker is that they will try to find you a better deal rather than going through the high street banks yourself. In this case they got me a better mortgage than what the Halifax were offering online.

However, I still had to meet a number of requirements before they could put me forward.

Minimum 1 Year Contracting

For example, the deal with the Halifax required that I needed to be contracting for a whole year. With 9 months under my belt, I had a few more months until I could qualify.

I was still looking for properties at this point, but I can imagine that this would be really frustrating if you’d just found somewhere you wanted to put an offer on.

Otherwise, they accepted the gross value of my contracts as evidence of income. I also had to show that more contracts were coming in or being renewed on a regular basis to demonstrate a steady flow of earnings. Have a good credit score also seemed to give them more confidence in lending to me.

The 1 year requirement gave me time to get my financials organised. As a typical contractor, my books have always been a little ‘adhoc’ to say the least, so this actually worked in my favour and gave me an incentive to sort all my accounts out for the long term and to clearly account for everything in the past.

Once I’d past 12 months and presented all my accounts, contracts and demonstrated the gross value of my annual income as well as how much I was putting into my limited company and paying myself in salary, I was able to make an offer on a ground floor maisonette.

Conclusion

Without going into the specifics, I still feel that I could have got a better mortgage if I were permanently employed by someone else, but unfortunately lenders deem contractors to be ‘high risk’ even if we do bring in a lot more money than a permie.

If I have a partner in a few years and they work permanent, it would probably benefit me to look into getting a mortgage against their salary instead. So that’s something to always bear in mind.

In hindsight, the whole process would have been much quicker if all my accounts were in good order. So that’s the first thing I recommend for anyone who’s self-employed and applying for a mortgage, sort your books out.

Then look around the best deal and talk to brokers while you’re at it. The more feelers you have out there, the more likely you are to find a contractor mortgage that’s right for how you generate income.

I found a few mortgages that were based on daily rates, but gross income seemed to be better for the way that I earn.