Let’s say you’re working in full time employment but actively seeking to take the plunge into the world of freelance contracting, with everything you have to worry about, don’t let your mortgage be one of them.
Read this FAQ’s on becoming a contractor and how this will affect your mortgage.
Q: I’m wondering whether moving into working for myself would likely breach my mortgage contract.
A: Nope! You aren’t under any obligation to inform your lender of your change in circumstances, provided you’re able to continue making your monthly payments.
If you do become a contractor and find that your income takes a short dip whilst you’re getting off the ground, it is vital that you notify your lender immediately, especially if you are going to struggle to make your monthly repayments. Lender’s don’t like having to repossess properties and so will always be willing to work with you to find the best solution as long as you tell them in advance.
Q: Is it true that I need to be contracting for at least 1 year?
A: Most lenders look for a 12-24-month employment or contracting track record with no more than eight weeks between each contract. However, different lenders have different definitions for people who are contractors, freelancers or self employed people. They want to see long term stability in your earnings. Some lenders view contractors as inherently risky propositions for a mortgage, but a good track record will encourage them to take a calculated risk. You might also benefit from a better deal if you can prove a solid track record.
Q: Will mortgage lenders quote me a higher interest rate because I am a contractor?
A: Not at all. Interest rates are generally the same for Contractors as for permanent staff, and sometimes even lower. This is because, as a contractor, you may be able to have put savings aside and therefore have a bigger deposit – which will reduce your interest rate and your monthly payments. As a contractor you may also have a better credit rating, which helps too.
Q: Will I need to provide 3 years of accounts?
A: If you are a contractor you will need a copy of your current contract and three months personal bank statements. If you are freelance or self employed you will need 3 years SA302 & Tax Year Overviews as well as three months personal bank statements.
Depending on what type of worker you are, you will also need:
- A copy of current contract
- 3 months personal bank statements
Freelance & Self Employed
- 3 years SA302 & Tax year overviews
- 3 months personal bank statements
Of course your personal circumstances will be taken into account. We would always recommend speaking to an independent financial advisor who has a track record in securing mortgages for independent contractors.
Q: How can I ensure my mortgage will get approved if I’m a contractor?
A: Speak to an independent mortgage advisor with a track record in helping contractors to secure a mortgage. An independent advisor will be able to provide more options and make sure you meet the lenders criteria before you actually apply for a mortgage. Simple things such as ensuring your credit score is clean, ensuring your contract is up to date and avoiding any breaks in contracting can all help to assure lenders that you’re a good candidate to borrow their money.
Q: Does being a contractor mean lenders see me as ‘high risk’?
A: As a contractor, you will not be viewed any more high risk than a full time employee, provided that your credit rating is good and you have a sizeable deposit, then you are classed as ‘low risk’.
If you have County Court Judgements (CCJs) against you or have defaulted on mortgage payments or credit card bills for example, then it will be more of a challenge – but this would be exactly the same for an employed person as well. If you do find yourself in this situation, there are still a range of specialist mortgages available which are designed to suit your circumstances.