IT Contractor Mortgages
Your home may be repossessed if you do not keep up repayments on your mortgage.
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IT Contractor Mortgage – useful information
Working as a Contractor in IT can mean earning more money than your employed peers while you’re working on a project. However, not having a permanent ‘job’ means the end of a contract is sometimes marked by a period of inactivity before the next contract begins.
This is a perfectly normal way of working for most IT Contractors and is part of the flexibility you enjoy as a Self-Employed IT freelancer. However, when applying for a mortgage, mainstream Mortgage Lenders, like high street banks and building societies, are likely to view your work pattern as a potential risk.
The good news is there are specialist lenders who understand how IT Contractors work and will happily accept your mortgage application. These lenders prefer to receive applications through a specialist broker they know and trust will vet your suitability before starting an application process.
Choosing an authorised and regulated specialist Mortgage Broker who will pull out all the stops to help you secure a mortgage is key. You should expect them to have an in-depth knowledge of the mortgage market and strong relationships with specialist lenders that are regulated by the Financial Conduct Authority (FCA).
Are there specific mortgages for IT Contractors?
The emphasis here is more about specific lenders and Mortgage Brokers who are dedicated to providing mortgages for IT Contractors. The mortgage product you choose will be the same product available to employed workers.
The difference is using a broker and lender that understands how to calculate your Contractor income. This will lead to a smoother application process and a greater chance of approval.
How will my income be assessed?
In most cases your income and affordability will be assessed by an underwriter because calculating your income will be more complex. Depending on how your IT Contractor business is set up, your proof of income will be based on either your day rate, contract rate or annual profit via a limited company.
When applying for a mortgage it’s best to be mid-contract with a strong track record of completed projects behind you. Your timing is important as it demonstrates you are good at securing contracts and capable of earning a steady income.
If you use your day rate to show how much you earn it will be calculated based on your potential to work 48 weeks of the year. Your daily rate is multiplied by the number of days you work per week then multiplied by the number of weeks you worked in a year.
So, if your day rate is £400 and you work four days a week, your weekly income is £1,600.
If you work 40 weeks a year, your annual income would be £64,000, less expenses.
If you are in the early stages of working as a Contractor you may operate as a Sole Trader before taking the step to becoming limited. In which case your Self-Assessment tax calculation will be taken into consideration to prove your income.
Contract Rates and Umbrella Agencies
You may negotiate a fee with a client which is different to your daily rate. Some clients may prefer to pay you via their payroll during your contract and this will be taken into account by the underwriter.
You may work as an ‘Umbrella Contractor’ where an agency finds you contract work and pays you via their payroll. The underwriter will want to see a contract timeline and payslips.
If you’re a limited company director, your income will be based on your basic salary, dividends and retained profit in your business. o avoid confusion, don’t change the way you operate until your mortgage is in place.
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How do I prove my income and what documents will I need?
If you’re a day rate Contractor you’ll need proof of days worked during the last year plus Self-Assessment tax calculations from HMRC. If you’re paid via your client’s payroll or umbrella company, you’ll need payslips and contract history.
As a limited company director a lender will expect to see your latest set of finalised accounts and possibly accounts for the previous two years. All Contractors need to provide the basic:
- proof of identity – ie passport and drivers’ licence
- utility bills
- credit report from a company like CheckMyFile
- be registered on the electoral role
How much can I borrow as a Contractor?
Most lenders will multiply your average annual income by 4.5. If you are buying with a partner their income will be added and you should be able to borrow more.
Because IT Contractors can earn larger sums of money on one go, you may be able to save a significant deposit. The more you can put down the more you will be able to borrow – aim for 15%, 20% or 25% of the purchase price.
How can the Mortgage Advice Centre help?
At the Mortgage Advice Centre, we help IT Contractors secure the mortgage they need to buy the home they want. Our service includes:
- Initial appointment to discover they type of mortgage you need
- An in-depth fact-find and borrowing calculation
- Finding the right specialist lender
- Submitting your application
- Frequent updates and ongoing liaison
It’s easy to set up an appointment via our website contact form. We look forward to meeting you.
Your property may be repossessed if you do not keep up with your mortgage repayments.