Why most lenders now offer bespoke mortgages for contractors

Why most lenders now offer bespoke mortgages for contractors
Contractor Mortgages

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Last Updated on September 11th, 2018 08:05am.

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The basic premise of a contractor mortgage is like any other:

  1. you see a home you want to live in;
  2. you apply for a mortgage;
  3. a lender offers you a mortgage loan using the home as collateral;
  4. they cap the maximum value of the loan at a figure they calculate you can afford.

But it’s the processes behind points two and four that differentiate a contractor mortgage from all others. Contract-based underwriting even distinguishes itself from the process using salary and drawings. The latter is similar, and a popular choice of many self-employed company directors. But it is different to the process we’re describing here.

The way we present your application to underwriters is one of the telling differences. But it would all be futile if you can’t borrow the amount you believe befits your status.

Acknowledging tax status is not the same as ignoring affordability

This is the contract-based underwriting difference. We use your gross contract value to work out your affordability. This, in turn, gives you access to much larger mortgage loans.

Contract-based underwriting is not a way to access funds you’d otherwise not afford. It’s just that we work with underwriters who ‘get’ contracting. They, as we, understand that contractors shouldn’t be punished for being tax efficient.

Think of it like this. Take a PAYE employee and a contractor who earn the same gross annual amount. Who has the most disposable income, all other things being equal?

It’s the contractor every time, because of their (or their accountant’s) tax efficiency. What they can claim as tax relief ensures that they retain more of what they earn.

The calculations High Street lenders use cannot accommodate this truth. The underwriters with whom we work understand it only too well. And that’s the difference between standard and contractor mortgages.

Author: John Yerou

John Yerou is the owner and founder of C&F Mortgages; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for contractors and freelancers across the UK.

In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.

His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.

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