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Contractor Mortgage Umbrella – a guide
What is an umbrella mortgage?
An Umbrella mortgage is not a specific type of mortgage, rather it refers to any mortgage product for which the Mortgage Lender is willing to consider the income of an applicant who works through an Umbrella Company.
If you operate under an Umbrella Company, you will be classed as employed, not Self-Employed for the purposes of your mortgage application. Contractors who are operating independently or under their own Limited Company will be classed as Self-Employed.
Can I get a Mortgage with an Umbrella Company?
Contractors who work under umbrella companies have a range of mortgage options available to them, however, it’s more likely to be specialist lenders who will be most able to help you.
Whether you work under an Umbrella Company or as a Limited Company, you should be able to secure a mortgage with the right lender. Mortgage Brokers such as ourselves are highly experienced in this area and can guide you on the options available.
What are Limited Company or Umbrella Company Contractor Mortgage Options?
As a Limited Company Director you will be an employee of your own company, which means that you will be considered as Self-Employed. Whilst you may feel that there are advantages to being seen as an employee, it’s worth bearing in mind that having your own Limited Company usually provides tax savings which lead to an overall higher income. In this situation, your annual salary and dividends will be considered as income for the purposes of the mortgage application.
As the employee of an Umbrella Company, the lender will usually only be willing to consider the information on your payslip as income. Whilst you will have less of an administrative burden in terms of providing proof of your income, some payment structures could affect the affordability quite considerably.
If, for example, your Umbrella Company pays a statutory rate as salary and then tops up your earnings through commission or bonus payments that do not appear on your payslip, you won’t be able to take advantage of your full scope of affordability.
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How do you Prove Income?
As a contractor operating under an Umbrella Company, your contract rates as per your payslip will be used to calculate your affordability. This will usually be proved using at least three months payslips, usually the most recent three available. You will also probably need to provide three months worth of bank statements, as your overall affordability, rather than your actual annual income figure, is what lenders are usually concerned with. This is also how the loan amount will be based upon.
As a contractor operating a Limited Company, you would be assessed as a Self-Employed applicant, meaning that your tax calculations for the previous two to three years will likely be requested in support of your application. This helps to mitigate some of the risk involved in fluctuating income, although it is possible to find lenders who will consider just one year of accounts.
Are Umbrella Companies Affected by IR35?
Those who are contracting under Umbrella Companies are not affected by IR35 as the Umbrella Company treats them as an employee, so tax and national insurance contributions will already have been taken from the gross income.
What is the importance of specialist Contractor Mortgage Advisers?
It’s vitally important to approach specialist contract mortgage advisers like ourselves, here at Mint Mortgages and Protection. The mortgage application process can be more complex for both Limited Company and Umbrella Company contractors, so it’s important to find a lender that fully understands the nature of your employment structure and payment type. You will ordinarily have to look outside of high street lenders to find them, which is where we come in.
We can help you to maximise your affordability and therefore your loan amount, by ensuring you approach a lender that is willing to look at your entire income. As this is a fairly niche area of mortgage advice, we have long-standing business connections with the types of lender that can help you to make the most of your contractor income, so we also have a comprehensive knowledge of their criterias.
As Contractor Mortgage specialists, here at Mint Mortgages and Protection, we can review your circumstances ahead of your application and help you to prepare for the most beneficial outcome. Save yourself the frustration and confusion of approaching lenders who don’t understand the world of contractor employment and the value of your income, get in touch today.
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