Over the last few months we have started to get more lenders showing an interest in offering mortgages to contractors. The reasons for doing so may be profit driven but even with this being the case, it is nice to see that we should have more options for these clients going forward.
Up until now the majority of lenders would almost treat contractors as self-employed thereby needing the usual track record of income over the last 2-3 years and for most clients that would preclude them from having a good level of options available to them.
The best lenders for contractors, in my view at least, are the ones that will take the day rate and then take 46-48 weeks of that figure to determine the lending potential. That works well as it is a better understanding of the need for this type of work and does not penalise those that do not want to be held to one place of work.
The really surprising thing with the stance of those lenders that are difficult to deal with for contractors is that a lot of the time we find it is clients doing this type of work for banks that then find they cannot get a good choice of mortgages – it’s ironic that lenders are happy to employ people on a contract basis but then say ‘no’ to them getting a mortgage!
The question now is how many new options will come available to contractors in the near future. We have already had a couple of lenders come to tell us that they are close to offering more competition for this segment of the market although it is possible that there may be specific products for them. If a specific rate of interest is going to be offered for this type of business I would like to see this done in conjunction with another benefit like offset. The fact is that contractors will generally earn good money against an employed equivalent and offset could be hugely beneficial as a use of the higher income.
On that point, this is something I think lenders should do more generally. I am all for targeting certain types of borrower with specific underwriting but that should be done in conjunction with making a product that works well for that as well. It is something that certain lenders do particularly well but sadly it is not the norm.
I think 2016 could be a good year for contractors if more and more lenders want a slice of that pie. With the EU Mortgage Credit Directive coming fully into force, they will need to do something to ensure that business volumes do not drop.
Written by: David Sheppard