Lenders documented evidence for contractor mortgage affordability (2021)

It’s critical that contractors’ applications show true affordability when they land on an underwriter’s desk. But how do you do that when you don’t have access to the underwriters themselves?

In a High Street branch or call centre, you often only get one chance to make the right impression. More often than not, that opportunity is with an advisor who has only a narrow set of mortgage types to offer.  Their instinct is to default to a self-employed mortgage, which relies on SA302s.

Now, SA302s don’t do justice to contract income, especially to retained profit. Thus, advisors’ inability to identify your income and present it in its best light is what will fail you going via your local branch.

Additional risk since the pandemic = new criteria

Before the pandemic, few documents actually mattered for proving contractor affordability. Accounts, payslips, self-assessments? They didn’t come into the picture. Your contract, proof of ID and earnings were the only supporting documentation you needed.

Lenders trusted specialist brokers to vet clients before sending their applications. That’s an advantage applicants didn’t get on the High Street. But with new risk criteria, that’s changed, somewhat.

What’s changed since spring 2020

Many lenders are now demanding SA302s, even for limited company contractors. That’s because they want to see if your income was affected by the various lockdowns we’ve had to date.

For many highly-skilled contractors, furlough and breaks in contracts never happened. But it still doesn’t help. How do you justify the difference between your day rate and figure on your SA302 to a novice advisor? It’s a tough ask.

But that doesn’t mean contractor mortgages no longer exist. It just means a little more documentation to prove your affordability. And, now more than ever, getting to an underwriter who understands retained profit.

Again, you’re unlikely to get that in-branch or through a call centre. You need a specialist broker who’s already had the ‘limited company’ conversation with lenders’ underwriting teams.

So, after talking to such a broker, they’ll ask you for:

• a copy of your latest contract;
• if you only have a short while left to run on your contract, an offer of an extension;
• copies of your personal and business bank statements, the latter showing receipts on a regular basis;
• a proof of ID, such as a utility bill, driving license or passport;
• your SA302* (from your accountant or from HMRC);
• your CV to verify:
  • time served in your chosen contracting industry, and
  • the viability of that industry given the new way of working.

We can package your application in this way so that it exhibits your true affordability. This guarantees you a mortgage offer that reflects your status, not your tax-efficient drawings.

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*At time of writing (22nd June, 2021), Barclays are offering contractor mortgages without the need for your SA302.