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You may well be familiar with the story. Most contractors and freelancers are already scarred by the time they reach us. Often, High Street lenders have unwittingly inflicted those wounds.
Failed searches leave ugly footprints on your credit file. When in-branch staff carry out a search for your application and they turn you down, that’s a black mark on your copy book.
But that’s not the worst of it. Once one lender has turned you down, it sets a precedent. The next lender gets suspicious seeing the previous search and are thus extra vigilant.
So your second application fails, too. It’s maybe on a technicality, but still. Once you’ve picked yourself up, you’re off to the next ‘contractor-friendly’ mortgage provider. The process then starts again, creating a smaller window of opportunity at every wrong turn. So what’s the answer?
For contractors and freelancers, it’s PAYE-back time
Most High Street banks, despite advertising mortgages for contractors and/or freelancers, don’t get how you work. Their mortgage affordability calculation isn’t geared for self-employed people. It revolves around PAYE, a spiral that can cause independent professionals a real headache.
High Street lenders tend not to see:
- what a contractor or freelancer is worth, even with their contract or accounts;
- that your six-month contract is as secure as any ‘job’ in the current climate;
- that your low take home pay is a good thing, meaning you keep more of your earnings than a permie doing the same job.
In-branch mortgage advisors struggle with self-employed accounts
In good faith, you take along your accounts after your accountant has prepared them for you. Or, if you’ve only just set up shop, you take your business plan or first contract. But that’s where your mortgage quest begins to take a turn for the worse.
Within minutes of sitting down with the advisor, you sense an air of doom settling in the room. They look at your take home pay, which is no doubt streamlined for tax efficiency, and your journey ends there.
Even worse, they may actually take on your application without knowing what they’re doing. They have no idea how to highlight your strongest assets for their mortgage underwriters. To clarify, those strengths are the amount you earn and the subsequent profit you retain.
The only element of worth that underwriters get to see is your net pay. Remember – you optimise your income for tax breaks, so keep drawings as low as possible. That’s a brilliant plan for reducing your tax and National Insurance bills. But as far as mortgages go, it’s as good a decision as taking a shortcut around an iceberg in a very big boat.
Prevention is better than cure
So, that headline’s a cliché. It doesn’t make it any less true, so we won’t apologise. The best way to avoid heartache on the High Street is not to go there in the first place. It’s a painful lesson that almost all contractors and freelancers endure.
And there’s no need. Contract-based underwriting through mortgage specialists has been around for almost a decade. If major banks and building societies were going to adopt it, you’d know about it.
The fact is, those lenders are happier letting specialists vet what remains a niche sector in the UK.
True, self-employment is on the rise. And lenders may well change their tune towards contractors and freelancers if the trend becomes an avalanche. But as it stands, training staff in the nuances of self-employed accounts is not on their priority list.
Few contractor-friendly lenders, many different lending criteria
There are High Street banks that provide mortgages for contractors and freelancers. But lenders have different affordability criteria and rely on specialists to match applicants with their products. They’re not in the business of time-wasting, dealing with people they know they cannot help.
C&F Mortgages is one of those specialists, matching self-employed people to relevant mortgage products. We:
- only deal in mortgages for contractors and freelancers, and do so every day of the week;
- are in constant touch with contractor-friendly mortgage underwriting teams;
- contract mortgage specialists who are freelancers and/or company directors themselves, so they know just where you’re coming from;
- know which products will suit you when it’s your turn to remortgage, move home or get onto the property ladder.
Buying a home should give you one of the greatest senses of accomplishment you’ll ever experience. But for independent professionals, it can soon become a horror story. Let us make your dream of home ownership a reality, not a Nightmare on High Street.