MOrtgage FAQs

MORTGAGE FAQ’S – ANSWERING YOUR QUESTIONS

What, exactly, is a contractor mortgage? How can first-time buyers without ‘traditional’ employment help their application to succeed? Can you get a buy-to-let mortgage when you’re self-employed? We answer your frequently asked questions below. In this section:

• How much could I borrow? 
• What is a contractor mortgage?
• What are the common pitfalls of securing a mortgage when self-employed?
• Am I restricted to my SA302 or Limited accounts when applying for a contractor mortgage?
• Will significant breaks between contracts have an impact on being approved for a mortgage?
• Can bad credit affect my mortgage application?
• Is there a minimum income criteria?
• Will changing my accountant or the way accounts are submitted impact my application? 
• Will a rolling contract cause any issues with a mortgage application?
• I already have Buy to Let properties, can you help me?
• Will using an agency umbrella payroll company affect my chances of getting a mortgage approved? 
• I’m concerned about mortgage payments and what I can afford without permanent employment – can you help?

How much could I borrow? 

This will depend on your individual situation, and the lenders affordability calculations.  The maximum is typically up to 4.5 times your income as a general rule of thumb. Visit out Mortgage Calculator to find out.

What is a contractor mortgage?

A contractor mortgage is only different from a regular mortgage in terms of how a lender will assess your eligibility for a loan. When typical lenders assess a contractor for mortgage affordability without specialist underwriting procedures in place, they will want to verify income by seeing two to three years’ worth of accounts or tax returns. As many lenders have not kept up with changes in the labour market, their criteria will often fail to accommodate the growing ranks of contractors. Generally, banks and building societies only lend to those who are considered a low risk – contractors are often unfortunately and unfairly regarded as high risk. This is usually down to lender concerns that the self-employed will struggle to afford their monthly payments when their current contract comes to an end. In a contractor-specific mortgage application, the underwriter will bypass traditional means of assessment – like a consistent income or evidence of payslips – and will adhere to specialist criteria that provides a better representation of your finances as a self-employed person. Alongside specialist advice from people that actually understand the nature of contract work, using a broker like Roots Mortgages in your mortgage process increases your chances of success.

What are the common pitfalls of securing a mortgage when self-employed?

Lenders have tightened their criteria since the credit crunch, resulting in many contractors who could easily pay a mortgage struggling to secure one. Contractor mortgages have previously fallen outside the strict lending criteria of the ‘traditional’ lenders, with many viewing self-employment as a grey area and expressing concerns about the lack of a reliable salary, accounts not reflecting the true income of the applicant, and lack of income security. You may also find you struggle to get a mortgage from a mainstream bank or building society if you’re working through an umbrella company.

Am I restricted to my SA302 or Limited accounts when applying for a contractor mortgage?

Not at all – where technically you are self-employed and most lenders will want you to provide your SA302 or Limited Company accounts or bank statements for proof of income, there are lenders which may use gross earnings based on their calculation of your current day rate. For example:

Day rate x 4.5 x 48 = £income.

This will definitely increase your affordability to those lenders who will use your income from self-employment for maximum loan calculations.

Will significant breaks between contracts have an impact on being approved for a mortgage?

Potentially yes – however, some lenders will allow some time off between contracts despite continuous history being preferable for obvious reasons. It all depends on the lender, your circumstances, and getting it right first time.

Can bad credit affect my mortgage application?

Unfortunately yes. Some lenders will consider issues with your credit file, though there are restrictions. However, there are various things you can do to improve your credit rating before you embark on a mortgage application, like closing down credit cards that have no balance, paying down outstanding balances, or opening a credit card if you don’t currently have any credit history. Even small things such as joining the electoral roll at your current address or ensuring your address history is up to date can help to make your application a success. Your Roots Mortgages adviser will able to make suggestions as to how you can improve your credit profile in order for your application to be favourably presented to lenders, but you can also help yourself by signing up to a credit referencing service such as ClearScore or Credit Karma to get to grips with your score and start making improvements if necessary.

Is there a minimum income criteria?

Some lenders do have a minimum income criteria, but certainly not all. We’ll only ever place you with the right lender for your circumstances.

Will changing my accountant or the way accounts are submitted impact my application?

This is a common occurrence for the likes of software developers, energy sector workers, and business consultants, and we deal with it daily. It’s best to get the right advice from us here at Roots Mortgages before you apply as lenders take a different view on this case by case.

Will a rolling contract cause any issues with a mortgage application?

Most lenders will prefer contracts with a definitive end date and a specified amount of time remaining. However, there may be options for this type of contract depending on your career to date and previous engagements.

I already have Buy to Let properties, can you help me?

Absolutely, criteria change massively when discussing your options on a BTL basis. Visit our Buy to Let page.

Will using an agency umbrella payroll company affect my chances of getting a mortgage approved?

It shouldn’t do, though the criteria around this differs lender by lender. It is important if you are making use of the agencies umbrella company to apply to the right lender though. Umbrella company contractors will find that many of their expenses will not be considered when calculating income, and in many cases the lender may not understand the concept of an umbrella company at all. Limited company contractors will experience a similar problem, as any money retained in the company for tax purposes will also not be considered. Both methods of operating are likely to lead to a shortfall in borrowing, which is where we step in to help broker the right mortgage for you.

I’m concerned about mortgage payments and what I can afford without permanent employment – can you help?

We’ll make sure we have a good idea of your budget and work frequency from the very start of your mortgage application and will never recommend anything that is out of your price range. The mortgage specialists here at Roots Mortgages will always have your best interests front and centre throughout the brokerage process.