Why do I need 3 years’ accounts for a contractor mortgage?

There’s a reason (and a real benefit to) why we use contract-based underwriting. It enables lenders to approve applications based on a contractor’s true affordability. In other words, it uses contract value to dictate a lender’s offer, not what you “take home”.

The most likely scenario is that a non-savvy advisor or High Street branch staff will ask you for accounts. That’s because their calculations work on what they can discern as disposable income.

As a contractor operating through a limited company, you keep your drawings low. This is a legitimate measure used by thousands of companies to help claim maximum tax relief.

Most advisers are unfamiliar with the nuances of such accounting methods. As such, they’re only going to look at one thing: your salary and/or drawings. It’s the only way they know to work out self-employed people’s income.

You can’t blame the adviser per se, even if their bank is “contractor-friendly”. It’s doubtful that any in-branch staff training encompasses limited company accounting.

With your drawings so low, the likelihood is that your borrowing could be substantially reduced.

What you need is for staff to base your affordability on a multiple of your gross contract earnings. If they look blank when you ask them that question, it’s time for a sharp exit.

Author: John Yerou

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.

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