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IT Contractor Mortgages
IT Contractor Mortgages – What you need to know
If you’re an IT contractor looking to purchase a property, you will most likely have to take out a mortgage. Historically, people in more unpredictable employment circumstances (including contractors, freelancers and the self-employed) may have a harder time getting a mortgage than those on a more regular income.
The eligibility criteria for a mortgage usually focuses on financial circumstances and without a consistent income from an employer, you may not fit the bill for some lenders. Even if you consistently earn well above the average salary, working as a contractor, your circumstances can still cause lenders to look at your application differently.
Is it easier now for IT contractors to get a mortgage?
It is currently easier to get a mortgage as a self-employed IT contractor than it once was, as more and more people are choosing to enter non-standard forms of employment. Several mortgage lenders offer specific mortgages and repayment plans for contractors or those who are self-employed.
At The Ample Mortgages, we work with lenders who specialise in providing mortgages for contractors. We’ll help you put your application together so it has the best chance of success with the lenders we have relationships with.
What is an IT contractor mortgage, and how does it work?
An IT contractor mortgage is, in simple terms, a mortgage specifically designed for self-employed workers in the IT industry. The loan you take out is secured against the value of your new property until you pay it off over several years.
When you apply for a mortgage, the lender assesses your application based on how likely you are to keep up with mortgage repayments. They will take into account your credit history and your current financial circumstances. An applicant with outstanding credit, a stable income, and enough money to put down a large deposit should have little problem taking out a mortgage.
However, as a contractor, you don’t have the benefits of a stable income, no matter how much you earn from each of your various clients. The very nature of your work means that while you may earn a considerable amount one year, you are not guaranteed the same income in the following year. For this reason, IT contractors are seen as higher risk to some lenders, and it can be more difficult for them to meet the eligibility criteria.
There are more than 5 million self-employed workers in the UK and we recognise these people need houses too. Many mortgage lenders are meeting the increasing supply of self-employed workers by offering mortgages specifically designed for contractors. As a specialist mortgage broker, we understand the more irregular nature of contract work. By consulting with us, you may significantly increase your chances of being able to take out a mortgage.
How is an IT Contractor mortgage assessed?
An IT contractor mortgage is different from a standard mortgage in the way it is assessed. A conventional mortgage might take a more general look at how much an applicant earns each year balanced against how much they spend. A contractor mortgage, on the other hand, will drill more deeply into the applicant’s work situation.
The eligibility criteria will take into account factors such as the length of your current contract, your day rate, and the hours you have historically worked. A mortgage assessed this way might work more in your favour than a standard one.
How do you arrange an IT contractor mortgage?
Taking out a mortgage as an IT contractor can be slightly trickier than if you are in permanent employment. But as long as you can provide enough evidence in your favour, you should have fewer challenges. Here are some tips to improve your suitability:
- Provide as much evidence as you possibly can in favour of your financial stability. This includes current and past contracts, bank statements, tax returns, and invoices. With our experience in contractor mortgages we will then be able to determine your affordability based on these documents. Evidence of previous experience and relevant industry qualifications will also help your case.
- Strengthen your credit report before you take out a loan. The better your score, the more chance you have of a lender accepting you. Pay off any outstanding debts, keep up with your regular payments and limit your spending in the months leading up to your consultation.
- Save for a higher deposit. The more money you can put down in an initial payment, the better interest rates you will likely be offered on your repayment plan, meaning you will probably save money in the long run. Try securing the highest deposit you can before taking out a mortgage.
- If you are buying a property with a partner, you may wish to consider taking out a joint mortgage. This is particularly useful if your partner is in permanent employment, as you will appear more reliable and stable as a couple. You could also choose to apply with a guarantor to offset the risk to the lender.
- Find a broker who specialises in providing access to mortgages for contractors. We know and understand all the technicalities of contract work and may be able to help you find the right rates, saving you time and money over the course of your mortgage.
What if you have a limited company?
If you have a limited company, the application process may be a little different. When assessing a company for mortgage lending, the lender may only take your personal earnings into account rather than the profitability of the company.
You may have a hugely profitable business while taking a low salary. In this case, we will need to look for a specialist lender who will look at all of your accounts. You will need to be able to distinguish between the money you hold and the money held by your company when making your case.
