Contractors often have concerns about their eligibility for a mortgage when working through an Umbrella company. While it’s entirely possible to secure a mortgage as an umbrella contractor, several factors can influence both the likelihood of approval and the terms offered.
It’s essential to grasp how banks differentiate between employees and umbrella contractors. Contractors typically work on a project basis, will change end clients during the mortgage term and can in some cases collaborate with multiple clients. This unique work structure can be confusing for lenders who rely on traditional lending criteria.
Working through an Umbrella company places you in a somewhat intermediary position between being employed and self-employed. The Umbrella company acts as an intermediary, handling tasks like invoicing and payroll. As a contractor within this setup, you receive a regular salary, with tax and national insurance contributions deducted at source.
One challenge when working as contractor through an Umbrella company is proving your income to the lender’s satisfaction. Using payslips from your Umbrella company alone may not provide a fair assessment since they might not precisely match your contract rate and income can often be broken down into several categories. However, specialised lenders exist who focus on offering mortgages to contractors, including those who work through Umbrella companies. These lenders typically consider your contract rate, the duration of your current contract, your work history, and earning potential.
There are typically 2 main issues you will encounter as an umbrella contractor.
- Proving your income to the satisfaction of the lender. As an umbrella contractor your income is often returned or listed as bonus, overtime and commission to name but a few, whilst this is not uncommon, lenders deem this income as variable and are unlikely to include 100% of it when calculating your ability to maintain the mortgage. It is common practice for an underwriter to only consider 50% of what they deem to be non-guaranteed income severely restricting the income taken into consideration for affordability. If the lender lacks confidence in your capacity to repay the mortgage, they might offer a reduced amount or decline your application. It’s crucial to understand how these payments affect your mortgage eligibility.
- The longevity of you contract. As a contractor, your contract is likely to run for a period of 6-12 months before a renewal is issued. Lenders view this as a risk and need to get themselves comfortable that you would be able to continue servicing the mortgage debt if your current contract was not be renewed.
In addition to income, lenders consider factors such as your credit score and existing debts or financial obligations. Ensuring that a lender accounts for all your income sources becomes even more critical.
Fear not, it is entirely possible to obtain a mortgage as an umbrella contractor. At My Contractor Broker we have a dedicated team of contractor specialists on hand to help you. We have built strong relationships with high street lenders allowing you to it most case borrow on the strength of the underlying contract. Typically a contract friendly mortgage lender will ignore you umbrella payslips and instead take your daily rate x the number of days worked per week x 46/48 weeks and used this annualised contract value for the purpose of mortgage funding.
While there might be some additional steps and considerations, contractors working through an Umbrella company can obtain a mortgages but collaborating with a specialist contractor broker and maintaining sound financial practices will enhance your chances of mortgage approval with terms that align with your needs.
My Contract broker is a specialist contractor mortgage broker exclusively for contractors. Our team have helped 1000’s of contractor throughout their careers.