mortgages and loans

Contractors can improve their chances of securing a contractor mortgage o loan by understanding how lenders rate their customers and by adopting some basic financial strategies. Therefore, the greater understanding they have of how lenders think the greater chance they will have of securing finance for their dream home.

The following some of the top tips for securing contractor mortgages and loans;

  • Avoid high street lenders

Contractors often find that they receive an initial positive response from high street lenders such as banks and building societies but are then turned down for a mortgage once they put in on their new home. This is because high street lenders initially only conduct a superficial credit check.

  • Find a lender happy to use annualized contract rates to set lending limits

The good news to contractors is that those lenders and mortgage brokers who understand them use an annualized contract rate when calculating how much they can borrow. Contract-based underwriting takes a contractor’s daily rate and multiplies it typically by 48 weeks per year to come up with an annualized rate.

  • Use your company accounts to back up you mortgage or loan application

Freelancers, who tend to work on a project and ad hoc basic rather than having a contract, qualify for special underwriting which uses the salary plus the net profit of the business based on company accounts. When applying for mortgages, freelancers need to supply up to three years of accounts, three months of bank statements and two forms of identification.

  • When doing your sums, remember you cannot use company money for offset mortgages

Contractors can run up huge cash surpluses during the year made up of money saved for corporation tax, income tax and VAT. But this money belongs to the contractor’s and not them personally. However, this does not stop contractors from utilizing this popular loan type as many link their savings and current accounts to the offset account to significantly reduce their mortgage interest.

  • Make sure you achieve and maintain a good credit rating

Contractors must have a good credit rating to ensure they qualify for the most competitive contractor mortgages. Contractors can have a shock in some circumstances, finding that their potential lender rejects their application because of something in their past.

  • Understand how targeted lenders use credit ratings

Most lenders use a bespoke algorithm to evaluate credit scores and create an internal score card for each contractor.

  • Big deposits win

Contractors with large deposits are more likely to secure a mortgage. Lenders look at the contractor’s credit profile and their loan to value ratio. Contractors with smaller deposits borrowing with a high loan to ration may have to answer more questions and jump through more hoops because the lender views them as a bigger risk.

  • Avoid breaks in competing

One of the attractions of the contracting lifestyle is the ability to take long breaks for holiday, travel and any other reason. However, if those breaks exceed eight weeks over an average 12 month period, then lenders start to have concerns.

  • First-time contractors can qualify for mortgages

Despite the requirement for a track record, there are lenders who will offer first-time contractors competitive mortgage deals. A track record will secure the best deals but first-timers can get their foot on the property ladder.

  • Work out if you can afford the repayments

Many people only look at how much they are permitted to borrow rather than how much they can afford to borrow.

For more detail: