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How does a gap in employment affect a Contractor mortgage application?

What is an acceptable gap between contracts from a mortgage point of view?

Contractors will tend to use the contract rate to secure a mortgage which will look at the year’s total contract value and it is popular among new contractors and First Time Buyers.
Lenders will think that you are a low-risk borrower if you have a good record of contracts and a good credit history. If you have gaps between contracts then it can be hard to find a lender, especially if you are using day rate.

It is not impossible to find a lender if you have gaps between contracts but how you will be assessed will vary from lender to lender. You should aim to have at least a year’s worth of accounts ready with evidence of continuous employment in the same types of jobs.

If you opt for the day rate route then lenders will look into a history of twelve months, if you have not been a contractor for that long then it may be worth getting an income projection. You can seek the help of a qualified accountant who will calculate what your annual income should be and present it to the lender.

Are there other routes as a Contractor with gaps between contracts?

There are other routes as you can use as a contractor, for instance applying for a mortgage as a limited company. This is becoming more and more popular among the mortgage market and lenders are becoming more flexible towards them.

A contractor needs to be a director using their limited company with more than 25% of shares to be considered self-employed. As a director of a limited company lenders will look into your income shown in SA302 forms or the salary and dividend income depending on the lender.

You will need to search for specialist lenders depending on your circumstances and it would be worth seeking the help of a mortgage adviser to know the right choice for you.

What documentation will I need to prove my Self-Employed income?

Lenders will look into your credit score and your employed history for at least the past 12 months.

You will need the following documentation:

Tax calculations – SA302 forms
Tax returns – SA100 forms

  • HMRC tax overview
  • Bank statements
  • Business Accounts
  • Credit report

Make sure to check the criteria of the lender you are choosing as they may require additional documents.

Can Contractors show annual accounts instead?

Not all lenders are going to accept this route. Some lenders will consider the mortgage applicants’ share of limited company profits and the director’s salary. They will typically look at the contractor’s share of net profit too.

You should aim to provide at least two years of accounts to a lender yet there are some who will accept less than this. The accounts will likely need to be signed by a qualified and registered accountant or a chartered accountant specified by the lender.

Can lenders consider gaps in exceptional circumstances?

Mortgage lenders will consider gaps for a number of circumstances. For example, if you want to spend more time with your baby as a new parent or if you have had a family member pass away. You will need to speak to the lenders and specify the gaps and why you have had them then see what they will agree to as exceptional.

How does a gap in employment affect my Contractor Buy to Let Mortgage application?

A gap in employment will affect your application depending upon how long the time period was between contracts and the reasons as to why they are there. You may require specialist underwriting.

There are lenders out there who will lend to you, but they all have different criteria. You need to ensure that you can afford to make repayments on your buy to let property if there is no rental income as your home may be repossessed if you do not keep up with repayments on your mortgage.

How can a Mortgage Broker help me?

A Mortgage Broker can help you to find the most appropriate mortgage based on your circumstance. They are authorised and regulated by the financial conduct authority meaning that they can help you with legal documentation too. Mortgage advisers who have access to the whole of the mortgage market know where to find the specialist lender for you.

There is no point in delaying your future just because of some gaps between contracts, if you are eager to invest and want to find the right option for you then get in touch with a Mortgage Broker today. A general inquiry will not incur a fee as we are determined to help you and make you feel more comfortable within the mortgage world.

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