As an IT contractor, you might be unsure about how to apply for a mortgage loan. People often talk about how lenders can refuse applications if you’re self-employed, or restrict how much you can borrow.
The good news is that IT contractor mortgages are available, you just need to know how to make the right application with the right lender.
Why is it hard to find good IT contractor mortgages?
The main issue for people in your position is the idea or job security and a reliable source of income. Most individuals get paid a set salary every month, leading to an annual salary that mortgage lenders can see and track. Therefore, the lender is aware of how much money that person makes every month/year.
With most IT contractors, your work can vary every month. It’s highly common for a lot of people in this line of work to make money that far exceeds the national average. The problem is that it’s not seen as a secure source of income because you’re not technically locked into full-time employment. From the lender’s perspective, you could end up in a situation where work dries up for a few months, meaning you lack the money to keep making repayments.
Obviously, from your point of view, this is frustrating. But, there are ways to get around this hurdle and apply for a mortgage. Essentially, you have to provide concrete evidence of your income.
How can you prove you have a stable source of income?
Before the financial crisis in 2008, any self-employed person or IT contractor could apply for a mortgage simply by declaring their income. These were known as self-certificated (or self-cert) mortgages. Unfortunately, too many people did this and some ‘misled’ about how much they earned, which led to thousands of people ending up in debt.
Now, the Financial Conduct Authority (FCA) has outlined some regulations that mean all lenders have to be more cautious. Usually, this means you need to provide evidence of your full business accounts – which have to be prepared by a chartered accountant. Some lenders require just a year’s worth of business accounts, others want accounts that date back across the last three years.
On top of this, it’s common to ask for your tax returns as well. If you’re operating more as a self-employed IT contractor – rather than a limited company – then they tend to only ask for tax returns.
Although the number of lenders is limited, the good news is there are still many lenders who specialise in contractor mortgages. They are contractor friendly and supply mortgage products based on day rates. To estimate the likely amount you can borrow you can simply multiply your current contract day rate by the number of days worked each week x 48 weeks (Some work to 46 weeks).
Multiply this total by 5 to establish the mortgage amount you can generally expect. So, a contractor on £400 per day could potentially raise £480,000 to buy or remortgage a property. This is subject to existing debts & financial commitments etc.
This is a much simpler way for someone working as a contractor to demonstrate their income. Unlike most high street banks who may expect three years’ trading accounts as proof of income, contract-based underwriting means you need only provide copies of your CV, signed contract document and three most recent bank statements.
As you can see, IT contractor mortgages are available, they’re just trickier to apply for because of the income and employment status considerations. Mainly, you have to get all of your accounts to provide hard evidence of your income. This will allow the lenders to verify that you earn enough money and have a stable enough job to afford a mortgage.
It’s always worth chatting to a mortgage adviser if you need extra help getting IT contractor mortgages. At The Mortgage Store, our advisers will help you finalise your application and apply to the lender – increasing your chances of being approved and receiving a good interest rate.