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

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

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Last Updated on September 18th, 2018 02:30am.

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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 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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