IT Contractor Mortgage
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IT Contractor Mortgage – A Simple Solution
Are you worried your application for an IT Contractor Mortgage will be turned down at worst or at best be complex and confusing? Here’s a simple solution for a hassle-free mortgage application.
Are there specific mortgages for IT contractors?
While there aren’t specific mortgage products branded as IT contractor mortgages, there are specialist mortgage lenders who cater for Self-Employed contract workers. They prefer to sell their mortgages via specialist Mortgage Brokers who introduce their pre-qualified IT contractor clients to them.
So to make sure you’re introduced to the most appropriate mortgage lender, engage a Mortgage Broker with plenty of experience helping IT contractors secure mortgages.
Lenders will only deal with specialist brokers registered in England, Northern Ireland, Scotland or Wales. Make sure you choose one that is authorised and regulated by the Financial Conduct Authority.
How will my income be assessed?
High street banks, building societies and speciliast mortgage lenders employ underwriters to review complex mortgage applications, like IT contractor mortgages.
When they assess your application they take a deep-dive into your income, operating costs, personal expenditure and other borrowing commitments. This helps them to calculate how much of a risk you pose and the amount they believe you can afford to borrow.
Lenders also want to see how stable your contract work is. You may be asked to provide evidence of past, current and, if possible, your next IT contract.
You’ll stand a good chance if your contracts are generally long term, such as 12 months or longer. Even better if you have six months left to go when you apply.
How do I prove my income and what documents will I need?
Limited company directors
If you operate your contractor work through your own limited company, an underwriter will assess your income using your last two or three years’ limited company accounts. Your basic PAYE salary, plus the dividends you draw, will be combined to reach a total figure.
The lender will expect your accounts to be prepared by a qualified accountant. They will want to see your director salary payslips and dividend vouchers as proof of income you’ve taken from your business.
Before applying for a mortgage, it’s a good idea to pay yourself more dividend income. This proves you earn well from your business and have the means to repay your mortgage loan.
If you work on a sole trader basis, a lender will expect to view your last two years’ accounts plus your SA100 and SA302 forms. These HMRC forms provide bona fide details of your income and tax you’ve paid.
Using your daily rate
Some IT contractors use their daily contract rate to show how much they earn in a year. If a lender is happy to calculate your income using this method they will expect you to have a 12 month contract in place.
The underwriter will calculate your income as follows:
- Your daily rate multiplied by the number of days you work per week
- Multiply your weekly total by the average number of weeks you work per year
- if your day rate is £450 and you work five days per week, your weekly income is £2,250
- If you work 44 weeks a year, your annual income would be £99,000 less business expenditure
Fixed-term contract work
If you’re on a fixed term contract you may earn your fee via PAYE, in which case the lender will use this figure to calculate your annual income.
Umbrella contract worker
If you contract under an umbrella agency lenders will be interested in your assignment and reassignment history.
To keep things simple, try not to change the way you operate your business just before applying for your mortgage. Make any changes from sole trader to limited company after your house purchase has gone through.
However you operate, the mortgage lender will want to know how much you spend on personal and household expenses. They will request your last three months’ bank statements and credit reference report.
To recap – these are the documents you will need:
- two or three years limited company accounts
- director payslips
- dividend vouchers
- HMRC SA100 and SA302 forms
- two or three years self-assessment accounts
- proof of your daily rate and recent contracts that verify this
- proof of identity – ie passport and drivers’ licence
- utility bills as proof of address
- credit report
How much can I borrow as an IT contractor?
Once you’ve worked out total annual income minus your expenses, multiply the amount you have left by 4.5. This will give you the full amount you can borrow.
So if your total annual income is £80,000 – the amount you could borrow would be £360,000
If you are buying with a partner, their income can be included too. If they are employed the lender may bump up their multiplier to five times your combined annual salary.
The amount you can borrow will also depend on the deposit you have available. As an IT contractor, it’s quite easy to save a substantial deposit. Try to aim for 15-20%.
This will also unlock favourable fixed interest rates that hover just above the Bank of England base rate. If you are remortgaging to avoid paying a current variable rate, a specialist mortgage broker will help you secure a mortgage with better mortgage rates.
How Can Mint Mortgages and Protection help me?
Choosing Mint Mortgages and Protection to help you buy your home or remortgage, means taking the hassle out of searching the websites of hundreds of lenders. It can be time-consuming and frustrating.
We’ll save you time and money because we already know which lenders to approach. We know how you work and how you get paid and so do our lenders.
That’s more than half the battle won, and we’ll help you compile your documents and complete your application. We’ll submit it on your behalf and deal with the day to day liaison with your chosen lender.
Once your mortgage has been approved, we’ll help you protect your purchase. All you need to do is give us a call for an initial chat, and we’ll get things moving.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE