What are IT Contractor Mortgages?
When you are looking to secure a mortgage as an IT contractor, you will inevitably have many of the same concerns shared by all kinds of contractors and self-employed people–how much you’ll be able to borrow, whether you’ll have to pay higher interest rates than ‘normal’ borrowers, or indeed if lenders will let you have a mortgage at all.
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Unfortunately, it is the case that many lenders, especially those on the high street, take a narrow view to borrowing. Most banks and building societies prefer to lend to people in conventional employment, who they perceive as being low-risk, rather than contractors and other individuals running their own business without ‘guaranteed’ income. However, it’s not all bad news. There are now many lenders on the market who cater to the needs of self-employed people and understand how a regular payslip is not the only way to measure income.
Mortgages for IT Contractors
Any lender’s decisions around granting a mortgage application will always be driven by the applicant’s income and what they will be able to pay. With a salaried employee, this calculation is quite simple when they can use figures from payslips; but with a contractor and other self-employed people, the lender has to work harder and step outside their usual comfort zone to get a realistic assessment of income–something that their tick-box systems are not really designed to do.
The irony is, of course, that most expert contractors are able to earn substantially more per year than salaried workers in the same role, and self-employed contractors are highly adept at managing their finances–budgeting for taxes, perhaps setting up their own limited companies to be more tax-efficient, or paying tax and National Insurance contributions through an umbrella company. It’s also difficult to see how a conventional employee is in a more stable position when they could be stranded high and dry if they were made redundant next week. So, it shouldn’t come as a surprise to find that, with the number of self-employed people rising, more lenders have entered the market who take a wider view and do not automatically see contractors as a high-risk prospect.
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What is an IT Contractor mortgage?
An IT contractor mortgage is a product that takes all your unique circumstances as a freelancer or contractor in the field of IT into consideration. Your income will be based around a series of contracts for work for a specific period of time or project, and you may experience occasional fluctuations. With many high street lenders joining the ranks of specialist mortgage providers in catering to the mortgage needs of contactors – thanks to the growth in self-employment and the changing nature of the employment landscape – you’ll now find a number of suitable options on the market.
Proof of income is the key point when it comes to a lender’s decision over whether to grant you a mortgage. During their affordability assessment, a provider will of course still want to see your current contract to supply services, check how much it has left to run and know what work you have lined up next, but those with a broader view will also understand how the nature of your work can both fluctuate and still deliver a steady stream of income – usually at a greater level over the course of a year than a salaried employee in the same field.
IT contractors also usually enjoy no shortage of work. With the majority of companies and individuals using digital media and online systems for their everyday communications and team meetings – as well as storing vast amounts of information and running a huge variety of business processes via their servers and the cloud, requiring many solutions related to security and customer experience – an IT contractor’s skills are constantly in demand. You can often find yourself in quite a strong position when taking on new work, and can command a high daily or weekly rate.
Showing that your verifiable income as an IT contractor will be more than enough to cover your monthly mortgage repayments should not be too much of an issue. Armed with information about your entire financial circumstances, current contracts, past employment patterns and predicted work revenue, we should be able to convince our selected mortgage lender that you represent a creditworthy prospect who meets all their criteria and who will prove to be a reliable borrower.
IT Contractor mortgage lenders
Over the last few years, it has become a lot easier for contractors in all sectors to obtain a mortgage. The specialist lenders that cater to self-employed people’s needs are willing to look at each individual’s case on its own merits and adopt alternative methods for calculating a representative annual income. This has shifted the landscape in mortgage lending somewhat, and you will now find some mainstream lenders have also become more flexible in their approach in order to not lose out in this growing portion of the market.
The various lenders each have their own criteria for applicants and ways of presenting or packaging mortgages for contractor workers. Some will label specific products aimed at your circumstances as ‘contractor mortgages’, while others will emphasise how anyone should have access to the same deals and how they use different ways to determine income and affordability when applicants are not in an employee relationship and don’t have weekly or monthly payslips to refer to. Either way, getting a mortgage as a contractor is a lot more possible than it once was, and if you meet a lender’s criteria for income and have a decent credit score, then you should be able to access the same kinds of interest rates and terms as anyone else.
How to prove IT Contractor income
Up until around 2009, it was actually possible for self-employed people and contractors to get a mortgage without having to provide any personal finance information, through the so-called ‘Self-certification’ mortgage. However, these products disappeared after the financial crisis and ensuing credit crunch, and these days the Financial Conduct Authority requires all lenders to verify a potential borrower’s income with necessary documentation. There are a variety of ways a lender can verify your income, depending on how your business and earnings are set up–as a sole trader, a partner, a limited company or via an umbrella company. Let’s look at the scenarios.
One common way for lenders to assess a contractor’s income is the same as for self-employed applicants–by requesting full business accounts from the last one, two or three years (according to who you speak to), prepared by a certified or chartered accountant. Some lenders will also ask for SA302 year-end tax calculation forms from HMRC–with accompanying tax year overviews–or may just be satisfied with these instead of the full accounts. If you submit your own tax return, you can print out your own by logging onto your account and finding the files, or if you or your accountant submits through online accounting software then you can access them through that too. You can also request that HMRC send them to you by post–something that might come in handy, as while many lenders are fine with self-printed copies, there are some that ask for the originals.
If your IT contracting business operates as a limited company, then most lenders will use your base salary plus dividends as a guide to your annual income. However, some of the specialist lenders may also take into account your share of net profits, or perhaps also profits retained in the company, to give a more rounded indication of your worth, which could have a significant impact on the amount you will be able to borrow for a mortgage.
If your contracting is based around a daily rate, many lenders will calculate upwards from your contracted rate to give an indicative annual income figure. They do this by taking your day rate, multiply it by 5 for number of days worked per week, then multiply that by 48 for an annual figure (allowing for public holidays and vacations), and then finally multiply that by 4 or 5 (depending on the lender) to get a number for the maximum borrowing amount they will allow.
IT Contractor mortgage broker
Our team at The Mortgage Centres are highly experienced at handling mortgage applications from IT contractors and all other kinds of self-employed people. We know how a contractor’s income is structured and how it can by its nature be inconsistent at times. As unlimited mortgage brokers, we have access to the whole UK mortgages market, and our knowledge of all the deals and lenders across the board means we will be able to match you with a lender whose assessment criteria will suit your present and future circumstances. Get in touch today to arrange a free, no-obligation discussion about all your options, and how we can help you find a contractor-friendly lender.
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