Guest blog: Contractor mortgage myth busting with CMME
Have you recently become a contractor? And are you looking at your next mortgage? Or maybe you’ve been turned down for a mortgage because you’re a contractor?
There are many myths around contractor mortgages, the most common being that contractors aren’t able to obtain a mortgage. Contractors do experience hurdles and have suggested it can be difficult, however with the correct advice and support from a Specialist Mortgage Broker it doesn’t need to be. CMME have gathered some of their favourite myths about contractor mortgages to bust them and make sure you have the right information you need:
You will be at a disadvantage, or penalised, when it comes to getting a mortgage, just because you are a contractor.
Most lenders fail to recognise that contractors can prove less of a risk than permanent workers. Lenders have increasingly become risk averse, they are all looking to lend to those they perceive as low risk. In the eyes of the lender, contractors do not fit into this criteria. The reason for this is two-fold:
- Firstly, contractors are unlikely to be able to prove the right level of income to support the level of funding, using the lenders standard criteria for income assessment. For example, if your daily rate is £500 per day, and you are looking to purchase a property at £350,000, and you run a limited company, but only salary and dividends of say £45,000 this is likely to restrict your lending to a maximum of £225,000.
- Secondly, lenders are concerned if your current contract comes to an end, how you will continue to afford the mortgage.
There is hope for contractor mortgages though, specialist mortgage brokers have campaigned for a more flexible approach by lenders when looking at mortgages for contractors. CMME have managed to overcome both these issues with a number of lenders by utilising bespoke underwriting terms for contractors.
To even be considered for a mortgage, contractors need to be able to put down a huge deposit – at least 50% of the purchase price
This is incorrect, lenders will consider a minimum deposit of 5% of the property value, subject to criteria and credit profile. If you can gather a 10% deposit, then you will be able to access mortgages with more favourable interest rates, and also have greater protection in case property values fluctuate.
Contractors are charged higher rates of interest
Previously this was correct when contractors had to rely on self-certified mortgages which did come with higher rates and fees, however today generally contractors can expect to have access to the same mortgage interest rates as people in permanent employment. In some cases, due to the high rates of pay contractors receive they can often gain access to better rates than those in permanent employment.
Contractors need an established history of success – either several years’ worth of accounts or a minimum of six months as a contractor
With a specialist mortgage broker, they can help get you a mortgage if you are a day 1 contractor or based on a minimum of 1 year’s accounts subject to criteria and credit profile.
Contractors need to be in a long-term contract to be able to get a mortgage, and even then, they can’t borrow much
A majority of lenders will prefer if you have at least 8 weeks remaining on a contract, but this is not an unbroken rule, lenders who work with specialist brokers will assess each case on its individual criteria.
As for how much you can borrow, CMME have calculators that can give you an estimation of your borrowing to help you plan your mortgage. Find them here.
Contractor mortgage applications take longer to be approved
Provided you supply all necessary documents and fulfil the criteria required a contractor mortgage will not take any longer than a mortgage for a permanent employment.
You can find more information about contractors and mortgages in our Contractor Mortgage Guide here.
Easy Accountancy are not authorised to offer regulated mortgage advice. Easy Accountancy are introducers to CMME.
Your home may be repossessed if you do not keep up repayments on your mortgage.
CMME is a trading name of CMME Mortgages and Protection Limited. Authorised and regulated by the Financial Conduct Authority (FCA reg. 414798). Registered in England No. 04886692. Registered Office: Albany House, 5 Omega Park, Alton, Hampshire, GU34 2QE. Please be aware that Commercial Mortgages, Overseas Mortgages and some Buy To Let Mortgages are not regulated by the Financial Conduct Authority. Calls may be recorded for training and security purposes and to improve the quality of our services.
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