- Multi-award-winning contractor mortgage specialist
- Affordability based on day rates (not accounts)
- Up to x4, x4½ or x5 times your annualised day rate
Request a callback
Get expert advice from one of our experienced brokers.
Experts in arranging Contractor Mortgages and Contract-based Underwriting
Mortgage Quest is one of the original pioneers of Contractor Mortgages. Since 2005, we’ve been knocking on lenders’ doors pushing contractor lending criteria. We’ve had so much success on the back of that, we’ve incorporated three brands to cope with demand:
Our persistence has been instrumental in introducing contractor mortgages to the contracting community. Today, we ensure that contractors get the mortgage their income warrants. That often means giving the high street a miss. Here’s why that’s so important:
Specialist brokers: interpreting your contract income
We’ve helped thousands of contractors from all walks of life secure a mortgage. Not using accounts, no; we mean by using their gross contract rate. There’s a huge difference.
We’ve also helped lenders understand why their standard formulae don’t work for contractors. We’ve sat with lenders’ underwriters and explained:
- How contractors use limited companies as payment vehicles
- Contracting income and retained profit
- Why a 6-month contract isn’t ‘high risk’
- Why their ‘take home’ or declared income is irrelevant for mortgage purposes
- The differences between umbrella contractor payslips and normal PAYE income
In short, we’ve bridged the gap between contractors and relevant underwriting criteria. Here’s how that works out for you.
How to fall at the first hurdle (the painful way)
From many, many conversations, we know how trying it is for contractors at high street lenders. Trying to explain your income structure is:
- incredibly frustrating
- and, often, futile.
How far you get with them will depend largely on how you run your business. Some lenders might try to assess you on the taxable income, such as the salary and any dividends you draw. In other instances, they may factor in your retained profits, too.
But how do you know which lenders consider the key income elements to assess contractor mortgage affordability sympathetically?
Where lenders get contract income all wrong
Most contractors operate in a tax-efficient way. That means they draw a minimum salary and restrict dividend drawings so as not to get punished by the higher rate tax.
That’s okay. From an income retention perspective, it’s your accountant’s job to minimise your tax liability. And, from a tax planning perspective, it works.
But this has the undesired effect of reducing contractors’ potential borrowing under high street lenders’ standard criteria.
It’s much the same story if you operate through an umbrella structure. There are so many more elements to umbrella payslips than advisors are used to, they may raise more questions than answers.
Worse than underestimating how much you can borrow, though: the lender could reject your application. If the advisor sends it to their underwriter, they will mark it ‘High Risk‘. You don’t want this at all.
When the underwriter sees the warning, their mind is pretty much made up. You get a decline from the lender. If that’s not bad enough, you get a nasty mark on your credit file, too. Double whammy!
That’s why contractors need specialist brokers with access to specialist underwriting teams. Only then can lenders use your biggest asset to work out your mortgage affordability: your day rate!
The best way to avoid this painful route is to avoid the high street branch network altogether. Here’s why:
Contract-based underwriting: the road less trodden
There is a better way for contractors to get a mortgage. It’s called ‘contract-based underwriting’ and, more often than not, is only available through brokers.
Why lenders only go through brokers is because this type of underwriting is specialist. It takes expertise to determine contract income affordability.
As a contractor, your limited company accounts exceed the knowledge of branch staff. That’s why you’re unlikely to get far in your local branch.
But even underwriters rely on input from brokers who specialise in contractor mortgages. That’s why it’s critical you choose the right partner to help you buy a home or investment property.
How to work out what you can borrow using your contract rate
“That’s all well and good”, you say. “But what does all this mean for how much I can borrow?”
Fair point. Let’s use the same criteria as we did in the earlier example, a contractor earning £225/day. Here’s a generic example of what they might borrow using contract-based underwriting.
I say ‘might’ because all lenders have different contract underwriting criteria. Each set of formulae reflects that specific lender’s attitude to risk. Individual circumstances will also affect an applicant’s ‘risk’ factor:
- credit score/history;
- available deposit/loan-to-value ratio;
- work history, including current contract details;
- the industry you are and have been working in.
Contract-based underwriting: why it’s better for contractors
So, here we go. The contractor earns £225/day and works 5 days/week. That gives them a weekly top-line income of £1,125.
They work 46 weeks a year (or at least a lender will expect them to). So that extends to £1,125 x 46 = £51,750 (gross “annualised” income).
Now – this is where contract-based underwriting makes all the difference for contractors. Contractor-friendly lenders will use the whole of that annualised figure in their calculation.
Not your net income.
Not what it says on an SA302 – the lender will use the whole £51,750!
How mad is that?
The importance of good credit
The last factor for contractor mortgage affordability is the lender’s multiplier. That’s the amount they’ll multiply your income by to get your ceiling borrowing amount.
In our examples, we often use a factor of 5. That’s the highest ‘multiplier’ you’ll get to extend your income to a borrowing figure.
But to get that figure, you must have all your ducks in a row. That includes the list of circumstances above, especially your credit rating. Let’s assume our contractor on £225 a day has a neat row of ducks.
So, they’d use their annualised figure and multiply it x 5: £51,750 x 5 = £258,750.
There’s little chance a contractor would get anywhere near that much on the High Street. That’s why a specialist mortgage broker is always best for limited company payment structures.
Get the mortgage offer your contractor status deserves!
Earn your just rewards by calling 0208 421 7998 or by submitting your mortgage enquiry here.