Wednesday 28 June 2017

Mortgages for contractors: The myths and facts

Author: Editorial Team

Facts vs myths

As a contractor, you may have many worries about obtaining a mortgage for your future home. Below, we separate the myths, from the facts: highlighting that many of your fears are likely to be overblown.

1. You are seen as too high risk to be lent a substantial amount.

Many contractors worry that they will be seen as high risk by lenders and that, as a result, they will not be lent a substantial amount of money. However, many experienced and knowledgeable lenders are likely to lend a contractor a comparable amount of money to those who are employed and maybe more, if they have a good credit rating and a deposit. A good credit rating will ensure that you are treated fairly, in terms of getting a mortgage; you will be treated as ‘high risk’ if you have a bad credit rating.

2. You’ll be charged extortionate interest rates.

As a contractor you may be under the impression that you’ll be charged extortionate interest rates, when it comes to obtaining a mortgage. However, as SJD Accountancy notes this is generally not the case:

“Interest rates are generally the same for Contractors as for permanent staff, and sometimes even lower. This is because, as a contractor, you may be in a position to have put savings aside and hence have a bigger deposit – which will reduce your interest rate and your monthly payments. As a contractor you may also have a better credit rating and this can help too.”

3. You cannot apply for a mortgage as a new contractor.

Many people new to the world of contracting worry that they will not be able to apply for a mortgage. This may not be the case though if you have a track record of being employed in the same line of work as you are now contracting in.

4. Contractors need a huge deposit in order to be accepted for a mortgage.

Some contractors fear that they will not be able to apply for a mortgage, unless they have a large deposit. However, contrary to popular opinion, contractors are offered the same opportunities as the employed – only needing a deposit of 5%, in order to apply for a mortgage.

5. Contractors need extensive records of successful accounts in order to be accepted for a mortgage.

This point goes back to the notion that contractors are seen as too high risk by most lenders, fortunately this is not the case – as Just Mortgage Brokers explain:

“While not all lenders are equally sympathetic to mortgage applications from contractors, with some lenders it’s possible to arrange a mortgage based on your current contract rate, or with just one year’s accounts. You usually won’t need to be able to prove that you have been working as a contractor for however many months or years, or be asked to produce two or three years’ worth of accounts. The key issue is whether you can show your ability to repay the loan – so you need to be able to prove income, whether it comes as net profits, a salary and/or dividends or simply a copy of your current contract. Certain lenders will even consider those on zero-hours contracts; although if this is the case, you would very likely need to be able to offer proof of income for a longer period, say a full year.”

Separating the myths from the facts

Obtaining a mortgage as a contractor is not as hard as it first appears, as long as you have a solid credit rating, you’ll be well on your way.

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Written by: Editorial Team