Being a contractor has many advantages, but it is not without its disadvantages. One disadvantage is the increased difficulty of getting a mortgage. Even if business is consistently booming and you are eminently capable of meeting repayments, lenders have a reputation for disliking independent contractors and freelances.
However, getting a mortgage as a contractor is far from impossible – indeed it may not even be as difficult as you think. You do, however, have to take a somewhat different approach from a regular employee.
Proof of Earnings
You will most likely need to provide proof of your earnings over at least two years, more likely three. This should take the form of fully-prepared accounts records or SA302s (HMRC forms which confirm payment of tax following the completion of an annual self-assessment tax return). At least, this is the standard practice for independent workers such as sole traders and limited companies. Sometimes, depending on circumstances, lenders may take a different approach with contractors which involves calculating your gross annual earnings based on your day rate.
Ultimately, your exact requirements when it comes to proving your income will vary depending on the lender you are approaching and your own circumstances. This is one of the key things which makes taking out a mortgage as an independent contractor more complicated than it is for people in regular employment. The best approach is to have three or more years’ appropriate earnings proof ready, along with as much supporting information as you can, and to check carefully with individual lenders as to what will be required. Note that if you have been contracting for less than a year you are highly unlikely to be able to get a mortgage at all, and your options will be limited if you only have a one-year earnings history, so in these circumstances it is probably better to wait.
Information and Advice
Another thing that contractors often have problem with is getting accurate information and advice from a lender about what exactly is on offer. For most lenders, the majority of first-contact customer advisers are heavily accustomed to dealing with people who are employed and not very well-versed in dealing with anyone else. As such, where the employed can just walk into a high street branch of a bank or building society and speak to an adviser, contractors may find that adviser’s knowledge lacking when it comes to the relevant needs, requirements and processes.
Phoning up a lender or enquiring by email can be more helpful, as sometimes the staff dealing with these communications can have a wider knowledge base and there is much greater opportunity for your enquiry to be passed on to somebody more appropriate. Alternatively, try dealing with a broker, some of whom specialise in contractors, freelancers and company directors. They will be able to advise you more thoroughly of your options and help you consider a number of different lenders while navigating the complexities of applying and qualifying with each one.