FAQ: Everything contractors need to know about mortgages

The High Street is a hostile place for contractors and freelancers looking for a mortgage. But it’s not always the bank or building society itself that’s in question.

Many mainstream lenders offer competitive mortgages for contractors and freelancers. Yes, they do. Not that you’d notice if the usual High Street response is anything to go by.

And therein lies the problem: the contradiction. The root of the problem is the underwriting criteria. The manner in which contractors work needs special attention, unafforded in branch.In the case of most lenders, the only staff who can give these requisite levels of attention are underwriters. And you won’t find them in your High Street branch on a sunny Saturday afternoon in July.

Contract based underwriting: what’s all the fuss about?

This process, one we’ve helped many lenders understand, is called contract-based underwriting. It is (and will remain) alien to most staff you’ll meet at your local branch.

Have you ever asked an in-branch adviser about securing finance based on your contract earnings? If so, you’ll know that blank look; in silence, it screams, “it’s not gonna happen”.

Yet you know one of your peers has a mortgage with that bank. You return an equally fixed glare, not believing what you’re hearing. Then scratch your head and walk out, ready to take umbrage with your colleague on Monday morning. Or on you Facebook app on the way back to the car.

It’s this contradiction, lenders who do but say they don’t, that confuses contractors the UK over.

Your personal guide through the contractor mortgage wilderness

To smooth the path, we’ve put together an all-encompassing FAQ. It lists answers to the questions our potential customers ask on a frequent basis. We’ve put them in chronological order here, to walk you through the entire process.

We’ll start with the basics, from how lenders categorise the self-employed. Then go right through to completion, with ample stop-offs along the way.

The questions below provide a link to the detailed information. For the short and sweet answer, see directly beneath the question, here.

Sitting comfortably? Then we’ll begin…

1. What Are The Differences Between Freelancers and Contractors (and does it matter)?
   • In the real world, how you class your service may not matter so much. For a mortgage lender, perception is everything!
2. Why High Street Mortgage Lenders Let Contractors Down (time and again);
   • Lord, we’ve tried to reason with mainstream lenders. Some will deal with contractors, others not. But even those that do are unlikely to offer contract-based underwriting in-branch.
3. Woohoo! I’ve Won My First Contract. Now, How Long Before I Can Apply For A Mortgage?
   • Whether it’s your first day or you’re a seasoned pro, we can help. Using your contract as the base of your application opens doors!
4. I’m Near The End of My Contract; Can I Still Get A Mortgage?
   • Our relationships with underwriters give us some leverage. But there are ways you can help yourself if your contract’s near completion.
5. Do I Really Need Three Years’ Accounts For A Contractor Mortgage?
   • On the High Street, in all likelihood, they’ll ask for 2-3 years’ accounts. Through a specialist contractor mortgage broker, though? Absolutely not.
6. Can Umbrella “Employees” Get Contractor Mortgages?
   • Yes, Umbrella employees can access contract-based underwriting. But whatever you do, don’t try to use the payslips Umbrellas issue!!!
7. What Documents Do Lenders Need To Process My Mortgage Application?
   • Underwriters who understand contracting don’t need many documents. We’ll package those necessary in a way that best highlights your affordability. And that’s so not by using your accounts.
8. How Do Standard and Contractor Mortgages Differ?
   • The terms of mortgages for contractors and permies are similar. It’s how brokers highlight out how much you can afford that’ll make the difference.
9. My Last Mortgage Was Self-Cert; What Do Contractors Do Now?
   • Self-cert has gone, and good riddance! Here’s why we think self-certification was never right for contractors, anyway.
10. My Credit Rating Is Not The Best. Can You Help?
    • Few mainstream lenders offer bespoke contractor mortgages. Even fewer deal with adverse credit. Finding a contractor-friendly lender and one unopposed to poor credit? We’ve found a couple of needles in the haystack for you.
11. How Much Deposit Do Contractors Need To Find?
    • Contractors need no bigger a deposit than permies. There are, however, advantages for putting more down.
12. Don’t Lenders Charge Contractors Higher Interest Rates?
    • In a word, no. However, your deposit (see 11) may impact the interest rate you pay over the long term.
13. How Much of a Mortgage Can I Get Using My Contract Rate to Work Out My Affordability?
    • The rule of thumb is 4½-5 x your annualised salary, but there are many factors. Only by making an enquiry can we determine the precise amount you can borrow.
14. Does Getting a “Decision In Principle” Make a Difference?
    • From a bargaining position, a decision, or agreement, in principle is a powerful weapon. But do be aware that it’s not the same as a firm mortgage offer!
15. Contractor Mortgages: The Keys To The Door In Double-Quick Time
    • Due to High Street lenders’ ineptitude, we’re used to processing mortgages in haste. But because underwriters need so few documents, 4-6 weeks is all a contractor mortgage often takes to complete.
16. Once My Introductory Rate Finishes, Can I Remortgage as a Contractor?
    • Many homeowners ‘settle’ for the long-term interest rate once the introductory fee ends. Mindful of early repayment charges, we can advise if remortgaging using your contract is the right thing for you.
17. What are the Current Stamp Duty Rates for Contractors?
    • Our brief overview and table of the current Stamp Duty Land Tax rates.
18. Do Contractors Need Life or Income Protection Cover?
    • From day one! Contractors don’t receive the benefits that employers offer staff. Contractor must protect their livelihood themselves.
19. How Do I Apply for a Contractor Mortgage?
    • Once you realise how much you can borrow, you’ll want to get started. We’ll walk you through the step of mortgage application.
20. What Makes C&F Mortgages So Special?
    • There are many reasons why C&F is different. We’re not affiliates. We are FCA accredited, award-winning mortgage brokers. We only serve independent professionals. We explain why that’s important to us, to you and to our lenders!
21. Won’t I Be Better Off With My Current Bank?
    • Even if you’ve banked with High Street for years, the relationship counts for little. Your application will go to an underwriter who doesn’t know you from Adam. Always, always use a specialist broker for contractor mortgages.