Whether you’re new to contracting or a seasoned professional, you may have encountered various misconceptions about obtaining a mortgage. Mortgage underwriting has evolved significantly in recent years, and while there are still instances where funding might be challenging, more and more contractors now have access to competitive lending options.
MyContractorBroker has decided to dispel some common myths surrounding contractor mortgages:
Myth 1: Contractors are Charged Higher Interest Rates Due to Increased Risk
Contrary to this myth, several High Street Lenders are comfortable working with contractors. Once you find the right lender, the mortgage schemes and interest rates available to you are no different from those offered to permanent staff.
Myth 2: Contractors Must Make Larger Deposits
This myth suggests that contractors need to put down a larger deposit to secure a mortgage. While a larger deposit often leads to lower interest rates, contractors can typically borrow with the same deposit levels as permanent employees. Most lenders offer options with deposits as low as 5%, but it’s crucial to discuss your specific situation with a broker to determine the best approach.
Myth 3: Contractors Need 12 Months of Contracting History and 3 Months Remaining on Their Current Assignment
There are mortgage options available to contractors from day one of their contracting careers. In many cases, sector experience is more important than the length of time you’ve been contracting. The requirement for the remaining term on a contract can be as little as one month, but each case is evaluated on a customized basis. It’s advisable to consult with a specialist contractor broker early in the process to understand how your unique circumstances will be assessed.
Myth 4: Limited Company Contractors Must Demonstrate 3 Years of Company Accounts
This myth suggests that limited company contractors need to provide three years of company accounts to secure a mortgage. While this may be true if a lender assesses you as self-employed, contractor-friendly lenders focus on your ability to service the mortgage debt based on the value of your current contract, rather than strictly relying on company accounts. Most lenders seek a track record of 2-3 years and examine averages of your taxable income, such as salary and dividends.
Myth 5: Contractor Mortgage Applications Take a Long Time
The time it takes for a mortgage application depends on two key factors: how well the application is prepared and the lender’s turnaround times. Specialized brokers ensure that all the groundwork is completed before the application is submitted. The correct lender is selected, all required documents are gathered, and pre-agreement is often obtained in advance. Surprisingly, contractor mortgage applications are often processed more quickly than those of permanent employees.