Too many contractors have had the sad experience of going to a high street bank and trying to obtain a
mortgage. It's not a pleasant experience, and here at ContractorCalculator we are happy to say that we can help you to avoid it.
What invariably happens is that the contractor explains who they are, and what they do. The 'customer
representative,' or whatever they call them nowadays, will explain that since the contractor does not have a full-time
job, the bank won't consider the mortgage. Doesn't matter that the contractor has an very impressive income level,
and solid documentation for that income. Doesn't matter that the contractor has a perfectly clean credit record. It's
like talking to the wall.
Eventually, some banks will offer a contractor a so-called self-certification mortgage, in which a contractor who can show three years of receipts will be considered. But the rates on these kinds of mortgages are higher, and the offer is much more restricted than what a full-time employee would enjoy.
Opening A Channel
But contractors do not have to endure the indignities of high street banking. At a number of specialised
consultancies, contractors can work with experts who can open a channel to lenders for them.
"We have developed bespoken underwriting for contractors and all those who have problems fitting into the
mould created by the financial institutions," says Tony Harris, principal at the Richmond, Surrey-based firm
Contractor Financials. Over the years , we have built up a huge reservoir of contacts with a lot of the big lenders and can now place virtually any contractor in a mortgage that fits their profile of income , available deposit, length of time contracting and credit history. "
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"We realise that, if your accountant is doing his job right, you may not show an important salary, since you take
income in other ways. So we use an annualised multiple of your contract rate: if you are earning a certain number of
pounds an hour, then we calculate an annual income for you. With this approach, we find we can obtain quite a choice
for a contractor, the same kind of choice that a permanent employee would have," Harris says.
This kind of service is not only available to contractors at the high end of the salary range, Harris explains. "We can work with every type of contractor regardless of how much they earn.
The important thing is the ability to demonstrate an hourly rate of pay which any serious contractor can do
Every Contractor, No Restrictions
Harris points out that they favour mortgages which offer maximum flexibility - one of his clients follows a professional sport, when he is not working as a contractor. His mortgage scheme allows him to overpay the mortgage during the time he works, then to use the equity during the time he supports his squad. That kind of flexibility isn’t easily found even by full-time employees.
Some contractors, perhaps because of the intermittent nature of their work, experience credit problems. This, however, does not prevent them from finding a mortgage via specialised advisers. A spokesman for the London-based mortgage broker Alexander Hall points out that they are perfectly able to find lenders for contractors who do not have perfect credit.
We are entering a period of higher interest rates, and this may make fixed rate mortgages a bit more expensive. “There will be a short-period in which there will be pressure on fixed rates,” Harris says. But Harris expects this to be followed by a return to greater flexibility. In any event, there is a broad choice available to contractor, and full ability to negotiate the rate that the contractor may seek.
The essential factor is to find a contractor-focused intermediary who both understands the way that contractors work, and is able to open a channel to lenders.
More Information
See our dedicated section Contractor Mortgages
Published: Wednesday, February 07, 2007
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