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As a Self-Employed IT Contractor you may be worried about how you can prove your income to a mortgage lender, especially when you don’t earn a regular salary or you’ve only been contracting for a short time.
In fact, you’d be forgiven for thinking that clinching a mortgage offer could be a tricky process that could lead to rejection.
Actually – this really isn’t the case – so let’s start by dispelling the myth. Securing an IT Contractor mortgage can be so much easier if you talk to a specialist Mortgage Adviser first.
A specialist Mortgage Broker will help you prepare all the paperwork you need to apply for a mortgage and help you calculate how much you could borrow.
Once that’s done, they’ll progress your mortgage application to the next level by introducing you to a select range of specialist mortgage lenders.
These mortgage providers aren’t your run of the mill high street lenders, they’re Contractor Specialist Mortgage Lenders who are already awarding mortgages to Self-Employed IT contractors like you. This means they already know how you work, how you get paid and how to calculate your income.
So how do you find them? It’s easy when you know who.
Unlike most high street banks and building societies, specialist contractor mortgage lenders will only accept mortgage applications from specialist Mortgage Advisers.
A specialist Mortgage Adviser can make the whole mortgage application process so much easier for these lenders because they do all the ground-work for them in advance of your application being submitted.
Talking to an IT Contractor Mortgage Specialist before you start looking at properties or hunting around for a mortgage deal, can save you a massive amount of time and hassle.
First of all they’ll take time to get to know you, listen to your financial aspirations, and work with you to give you the best possible outcome when it comes to securing a mortgage offer first time around.
Once they understand what you want to achieve and how much money you need to borrow, they’ll prepare your mortgage application for you. Then they’ll submit it to a carefully selected lender on your behalf, tripling your chances of securing a mortgage first time.
Momentum Mortgages is an experienced Mortgage Adviser specialising in mortgages for Self-Employed contractors, so, if you’re ready to get cracking, here’s what you need to know before we make a start.
Most lenders will allow you to borrow up to four-and-a-half times your annual income, This is what we call “loan to income ratio” however depending on your deposit and annual income there are lenders that may increase this ratio . If you’re applying for a joint mortgage with a partner, their income will also be included..
If working out your annual income isn’t straightforward, some lenders will take your date rate into consideration. If you have current and previous contracts stating your day rate, you can include these in your application.
A 75% LTV, for example, means you’ll need 25% of the purchase price as a deposit. On a £400,000 property that would be £100,000.
You’ll then take out a mortgage on the remaining 75% which would be £300,000. Bear in mind the more you can put down as a deposit, the lower the interest rate will be.
New 5% Mortgage Guarantee Scheme
If you’re a First Time Buyer or Homemover looking to upsize, you may qualify for one of the Government’s new 95% LTV Guaranteed Mortgages announced in the Spring 2021 budget. Provided the property is valued at less than £600,000, you will only need a 5% deposit.
Assessing your income
Once we’ve submitted your mortgage application to a potential specialist lender, their underwriters will assess how much you can afford to borrow and decide how much to lend you.
As part of your application we will have included your last two or three year’s worth of tax returns, or proof of your last six month’s worth of income if you’ve only been working as an IT Contractor for a year or less. Some underwriters only ask to see your SA302 forms or a copy of your latest contract depending on how the lender is assessing your income.
SA302 forms are HMRC’s official statement of how much you earned and how much tax you paid for each financial year. You can access these online or via your accountant.
We will have also included your day rate and the number of days you work per week to calculate your annual income which will be on your contract.
This will be submitted together with details about your current and past contract work to reassure a lender that you’re someone who obtains and carries out frequent contractor work.
One of the most important things you can do is show a mortgage lender that you’re a reliable payer and that you’ll be consistent when it comes to repaying your mortgage loan.
The easiest way to do this is to use an online credit company to check your credit rating and raise your score by settling any unpaid debts sooner rather than later.
Verifying your identity is also crucial at this stage. If you’ve changed address or relationship status, your ID details could be different when a lender searches for you.
So make sure your name and address is the same on your mortgage application as it is on the Electoral Roll. Check your details on the Electoral Roll are correct to be absolutely sure before we submit your mortgage application.
When your fixed rate mortgage comes to an end, will you be able to afford your mortgage repayments if you move onto a variable rate or the Bank Of England puts up the base rate?
We can help you work out how much extra you’ll need to put aside for future mortgage repayments if interest rates do rise.
Now we’ve summarised pretty much everything you need to know about applying for a mortgage as an IT contractor, your next move is to talk to a reputable Mortgage Adviser who specialises in helping IT Contractors.
We’d be delighted to help you make a start today.
Momentum Mortgages are experienced Mortgage Advisers specialising in mortgages for Self-Employed contractors.
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.