If you’re an IT contractor, you may well have had problems trying to arrange a mortgage in the past.
Some mortgage providers seem to have a bias against contractors and freelancers or insist you produce three years accounts before doing business with you. The credit crunch, and recession which followed it resulted in most financial services companies tightening their lending criteria.
Not only were ‘self-cert’ mortgages outlawed, but larger deposits are now necessary to secure the best rates, and lenders are more thorough than ever when processing mortgage applications.
Top contractor mortgage tips
1. Always use a contractor specialist (see more information below). Niche mortgage advisors will have strong relationships with lenders who understand how contractors operate and know the difference between permanent employees and contract workers.
2. Don’t look solely at the headline interest rate on mortgage products. More and more mortgages now carry introductory fees, as well as Early Redemption Penalties. The combined effect of such extra fees will be to increase the interest rate over the mortgage term.
3. Since the credit crunch, you need to find a substantial deposit in order to secure the best mortgage rates. Although mortgage lending restrictions have eased somewhat over the past few years, you should ideally provide at least a 10% deposit.
4. Mortgage lenders have never subjected applications to more scrutiny, following the sub-prime mortgage disaster of 2007-8. Make sure you can provide accurate, up-to-date limited company accounts and/or HMRC self assessment tax calculations.
5. Check your credit record with one of the leading credit reference agencies (such as Experian or Equifax) before applying for a mortgage. Have you kept payments on outstanding credit accounts up-to-date, and do you appear on the Electoral Roll?
Steps to securing a property
For contractors thinking of buying a new property, there are a number of typical stages you can expect to pass through from securing a mortgage offer, to completing on your new home.
- If you are considering a property purchase, you first need to find out how much you can borrow, and what mortgage offers are available.
- Your should secure an ‘agreement in principle’ from your selected mortgage provider – either directly, or via you IFA.
- Make an offer on your chosen property.
- Once the sale price has been agreed between parties, you should instruct a solicitor.
- You should tell your mortgage company (or IFA) to begin the mortgage application.
- Your solicitor will begin to undertake local searches (land registry, environmental, chancel searches, etc.)
- You should undertake a survey of the property – this can easily be arranged via your IFA, mortgage company, or solicitor.
- Your mortgage offer should come in.
- Local searches will be checked, and property enquiries dealt with between solicitors.
- You will need to transfer the agreed deposit to your solicitor.
- Contracts are exchanged, and both parties agree a completion date.
- Your solicitor will request the mortgage advance so that the funds have cleared in time for completion.
- Your solicitor will send the transfer deeds to the seller’s solicitor.
- Hopefully the purchase completes on times, and the estate agent will deliver the keys to your new home!
Contractor mortgages – why you should use a specialist
There are a number of specialist contractor IFAs in the market. These firms deal only with contractors and have access to the best contractor mortgage offers in the market.
Using their network of contacts within the mortgage industry, and many years of expertise, these specialists can access the most competitive ‘high street’ mortgage deals.
Please use this article as a guide only. Always seek professional advice when considering your mortgage options.