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You may well be familiar with this story. High Street lenders have already deeply scarred most contractors and freelancers by the time they reach us.
Often, inept in-branch advisors unwittingly inflict those wounds.
Their weapon of choice? Failed credit searches! Failed searches leave ugly footprints across your credit file.
When lenders carry out such a search based on your application criteria and go on to turn you down, it leaves a blot on your copy book. And one for all to see thereafter!
Ever decreasing circles…
But that’s not the worst of it. Once one lender has rejected you, it sets an unintentional precedent. The next lender gets suspicious seeing the previous failed search and becomes extra vigilant when scrutinising your application.
So your second attempt fails, too. It maybe on a technicality (or not), but still: it’s another black mark against your file.
Once you’ve picked yourself up, you’re off to the next ‘contractor-friendly’ mortgage provider. The process starts again, but you’ve created a smaller window of opportunity at every wrong turn. So what’s the answer?
For the first time, it’s PAYE-back time for contractors and freelancers!!
Most High Street banks, despite advertising mortgages for contractors and/or freelancers, don’t get how you work. You are, when all’s said and done, a niche or specialist borrower.
Their mortgage affordability calculation isn’t geared for self-employed people, especially not independent contractors. It revolves around PAYE, a spiral that can cause independent professionals a real headache.
High Street lenders tend not to see:
- what a contractor or freelancer is worth, even with their contract or accounts to hand;
- that a six-month contract is as secure as any ‘job’ in the current climate;
- that low drawings are a good thing, meaning you keep more of your income than a permie doing the same job (albeit as company profit).
In-branch mortgage advisors struggle with self-employed accounts
In good faith, you take along your accounts after your accountant has prepared them for you. Or, if you’ve only just begun contracting, you take your business plan or first contract. But that’s where your mortgage quest begins to take a turn for the worse.
Within minutes of sitting down with the advisor, you sense an air of doom settling in the room. They look at your take home pay, your SA302, which is no doubt streamlined for tax efficiency. Look at your contract rate, get suspicious, and your journey ends there.
Even worse, they may actually take on your application without knowing what they’re doing. They have no idea how to highlight your strongest assets for their mortgage underwriters. Those strengths are the amount you earn and the subsequent profit you retain. The latter rarely enters their equation!
The only element of worth that underwriters get to see is your net pay. Remember: you optimise your income for tax relief, so keep drawings as low as possible. That’s a brilliant plan for reducing your tax and National Insurance liability. But as far as mortgages go, it’s as good a decision as taking a shortcut around an iceberg in a very big boat.
Prevention is better than cure
So, that headline’s a cliché. But that doesn’t make it any less true. The best way to avoid heartache on the High Street is not to go there in the first place. It’s a painful lesson that almost all contractors and freelancers endure.
What makes it hard for me to bear is that there’s no need for this heartache, this rigmarole. Contract-based underwriting, through a mortgage specialist, has been around for over a decade.
If major banks and building societies were going to adopt it, you’d know about it by now. But most haven’t and have no plans to, at least at branch level!
The fact is, most lenders are happier to let specialist brokers vet contractors. Despite the rise in popularity of PSCs, limited company contracting remains a niche sector in the UK.
All self-employment is on the rise. And lenders may well change their tune towards contractors and freelancers if the trend becomes an avalanche. But as it stands, training staff in the nuances of self-employed or limited company accounts? It’s not on their priority list.
Few contractor-friendly lenders, many different lending criteria
There are High Street banks that provide mortgages for contractors and freelancers. But lenders have different affordability criteria and rely on specialists to match applicants with their non-standard products. They’re not in the business of time-wasting, dealing with people they know they cannot help.
C&F Mortgages is one of those specialists, matching self-employed people to relevant mortgage products. We:
- only deal in mortgages for contractors and freelancers, and do so every day of the week;
- are in constant touch with contractor-friendly mortgage underwriting teams;
- contract mortgage specialists who are freelancers and/or company directors themselves, so they know just where you’re coming from;
- know which products will suit you when it’s your turn to remortgage, move home or get onto the property ladder initially.
Buying a home should give you one of the greatest senses of accomplishment you’ll ever experience. But for independent professionals, it can soon become a horror story. Let us make your dream of home ownership a reality, not a Nightmare on t’High Street.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.
Posted by John Yerou
on May 13th, 2020 18:43pm in