Working as a self-employed contractor can be a dream come true. Becoming your own boss, enjoying the freedom to work under your own terms and generally having the final say on everything that happens.
Unfortunately, it can also be a nightmare in a financial sense. As you may already know if you’ve been repeatedly refused financial support from the vast majority of mainstream UK lenders.
Truth is, obtaining a first-time buyer mortgage when you’re self-employed isn’t easy. To an extent, it’s a little like attempting to secure a mortgage if you have bad credit. Some lenders will immediately count you out of the running, for the simple reason that you’re a contractor.
Are You Considered a Contractor?
As far as most lenders are concerned, you’ll be defined and classified as a contractor if you fit in with the following criteria:
- You’re employed by a company but on a short-term or fixed contract
- You’re self-employed and provide services through one primary company
If this is the case, you may run into difficulties when applying for a mortgage. Some lenders will accept applications from one of the above, while others won’t go near either.
This is where the importance of consulting with an independent broker becomes clear. Before penning an application, you need to know where you stand in the eyes of the available lenders, which to focus your efforts on and which to avoid. Not to mention, which financial products are available and suitable, in accordance with your requirements and your current financial circumstances.
Criteria Considered by British Lenders
If you’re officially classified as a contractor by a lender, you can expect to have your case scrutinised in a variety of ways. Examples of which include extensive proof of income, your current credit score, your age, the specifics of the property you intend to buy, your long-term financial outlook and so on.
In addition, they’re also likely to take an interest in the length of time you’ve been working as a contractor, the type of contract(s) you’re currently working on, how consistently you’ve had your contracts renewed, your experience in the industry in general and your typical business outgoings.
Each lender will assign its own unique value to these and various other considerations, which will come together to establish your eligibility or otherwise.
Boosting the Appeal of Your Application
To a degree, the final decision reached is out of your hands. Nevertheless, there’s much you can do to enhance the appeal of your application in the eyes of the lender.
The first of which being to consult with an independent specialist broker, who can advise which lenders to approach and which to avoid at all costs. Extensive proof of income is, of course, mandatory – presenting a long track record of your earnings could support your case.
As with all mortgage applications, your ability to provide a deposit will also affect your eligibility. If you’re considered a low-risk borrower, you may get away with as little as 10%. If your case isn’t quite as convincing, you may be asked for 20% or even 30%. In all instances, higher deposits usually mean more competitive overall borrowing costs and heightened accessibility.
In a nutshell, the more convincing your case in a financial sense, the better. This is where your independent advisor can help you collate the evidence you’ll need to get a good deal. If you have an accountant, they may also prove useful for strengthening your case.
Whatever your financial circumstances and intentions, seeking the support of a whole-of-market broker will ensure you gain access to the best possible deals available.
Article by iConquer