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If you are an IT contractor, you may be wondering if you are eligible for a mortgage. The good news is that there are a number of IT contractor mortgages available on the market. We will provide a comprehensive breakdown of IT contractor mortgages. We will also discuss how IT contractor mortgages work and how to prove your income as a contractor.
When it comes to getting a mortgage as an IT contractor invariably you will want to know what you can borrow. Being an IT contractor poses questions such as will I be able to get a mortgage and will it cost more than a normal mortgage.
IT contractor mortgages take into account your unique circumstances based on your contracts which may experience variations in income across different contracts and possibly gaps between projects.
Employing consultants on the basis of IT contractors has become more common which means that more and more lenders are willing to consider IT contractor mortgages. Most high street lenders have very strict criteria, this is because they lend a lot of money and want to reduce risk however that being said there are many lenders that will consider IT Contractor Mortgages at competitive rates. IT contractor mortgages are available to IT contractors who do not get your typical payslip or are employed on a usual permanent contract, you may be contracting as a sole trader, operating their own limited company or through an umbrella company, you could also be employed by the company your working for or via an agency on a PAYE basis but just have a fixed-term contract.
IT contractor mortgages are available from a number of high street lenders however typically you will need some experience in contracting and sometimes some prior industry experience. there are also more specialist lenders and smaller regional building societies that will take on an IT contractor from day 1 of entering their contract subject to having some industry experience in an employed role.
The main consideration by lenders will be showing evidence of your income. The right lenders understand that while your income fluctuates when you add this income up over the year it typically is greater than that if an employed IT consultant.
When it comes to IT Contractor mortgages, the income that you state on the mortgage application is very important. As an IT contractor your income may vary from contract to contract however typically when averaged out over a year it is much higher than someone employed in a similar role.
Up until just after the financial crash of 2008 it was possible to get a mortgage without any income evidence at all under self certification mortgages. However now all income has to be evidenced in order to prove you can afford the loan, regardless of the amount of deposit you have. Different lenders will have different criteria on what they consider acceptable income evidence.
Lets go through the different ways that a lender can assess your income for IT contractors.
Some lendere will assess income from IT contractors the same way as they assess self employed if that contractor manages their own tax. This means they will usually take the latest two years net profit off the self assessment tax calculations (SA302s) and then average the income, unless the latest year is lower otherwise most lenders in that scenario would use the latest year. The problem with this is lenders will only use the net profit so this will be your gross income minus the expenses you claim for to reduce your taxable income.
If you are an IT Contractor running through your limited company then some lenders will treat you as a self employed company director, this means that they will usually either consider the last two years average salary and dividend or some lenders will consider the last two years salary and net profit. Most lenders that do IT Contractor Mortgages will consider your income on their contractor criteria which usually means running off the contract rather than the company accounts, you tend to need a minimum level of income to qualify for this or work in certain industries with IT contracting generally being one of them!
If you are on a day rate Then the most sought after way to prove your IT contractor income to a lender is with a copy of your current contract, this will detail either your day rate, and the lender will use this to calculate your yearly income, this is usually by multiplying your day rate the number of days worked in the week and then multiplying this weekly income by between 46 and 48 weeks to account for public holidays and time off.
If you are on a fixed term contract or operate through an unbrella company then lenders will want to see the last three payslips at a minimum.
As you can see there are various ways that lenders assess IT contractor’s income, so it is important that you speak to a mortgage broker who will be able to find the best IT Contractor Mortgage for you.
It can be important to tell the full story to a lender to convince then to lend to you which is why a specialist mortgage broker for IT contractors will fully look i nto your financial circumstances, current contracts, past employment, and expected income so we can present a case that passes all the lenders criteria.
Over time more lenders have entered the IT contractor mortgages lending space and contractors of all industries have also found it easier to find a lender that will have friendly criteria towards them.
There are a number of IT contractor mortgages lenders and specialist lenders that are willing to look at the contract itself as evidence of income for self-employed IT contractors rather than accounts or tax calculations which can show a much lower income than the gross income from the contract. This can be really useful for day rate IT contractors as lenders who offer IT Contractor mortgages will use the day rate in their calculation.
Many mainstream lenders such as Halifax, HSBC, Clydesdale have flexible criteria in regard to IT Contractor Mortgages and there are less well-known lenders such as digital mortgages that will have high street competitive rates that only operate through specialist mortgage brokers. There are also lenders such as Kensington & Kent Reliance who offer IT Contractor Mortgages for those with bad credit.
In terms of rates, as long as you have a good credit rating then there is no reason you can’t access the same kind of interest rates as others.
As a limited company director, you’ll need to be able to provide information on your income as part of your mortgage application. This includes the salary and/or dividends you’ve withdrawn from your company, the net profit of the business, and proof that your income can be considered stable.
While your application is slightly more complex than usual, our specialist mortgage advisers are here to guide you. After all, we know the ins and outs of finding a mortgage in these circumstances! By assessing your unique requirements, we’ll be able to find the competitive deals to suit your needs.
Lenders will typically expect your company to have been trading for at least two years. But some will consider one-year trading along with future income projections.
You will also need to provide:
If you have less than one year’s accounts, unfortunately lenders are unlikely to consider you, However one of our core values is preparation and what we can do is help you to plan for your mortgage journey. That’s why we offer a free strategy call so we can discuss your business and what you need to do to make your application look as positive as possible.
A couple wanted to buy their dream home. They were both self employed with one being the company director and shareholder and the other working for the business as a contractor. See how we got them their mortgage when their income on paper was low for tax efficient purposes.