There are five different types of contractor nowadays:
- Self-employed contractors
- Fixed/short-term contractors on an employed basis
- Contracting through an umbrella company
- Zero hour contracts
- Agency workers
Self Employed Contractors
So you’ve decided to take the plunge, you’ve left the apparent security of your employed role to seek the riches of the contractor market. Daily rates to dream of which will open new financial freedom for you and your family. You feel like you’re ready to take your new earnings to the mortgage market.
The next logical step would be to approach your bank. You’ve got this new level of income which should unlock the key to buying the house of your dreams. An appointment has been made with the mortgage advisor at your local branch which is around two weeks away. The appointment comes around and you’re with the advisor for a good three hours, only for the advisor to say, I’m sorry, you’re classed as self-employed now and you would need three years accounts. Now what?
Not all is lost, there are mortgage lenders out there who will lend to you, it’s just knowing where to place your business. A specialist mortgage advisor will know where to place your case very quickly. What mortgages are available to you is dependent on the amount of time you have been a self-employed contractor.
If it’s your first contract but have previous experience in the industry, you could still get a mortgage with just a 5% deposit! This may be your first role in a completely new sector for you, at this point you may struggle to get a mortgage with a small deposit but it could still be achievable with a 20% deposit.
You’re now thinking, “Great, I can get a mortgage, but how much can I borrow?” This is completely dependent on the lender your advisor approaches. But to give you an idea, if you take your daily rate, multiply this by 5, then by 46, this will give you your annual salary, then multiply this by 4.5. This will give you an approximate borrowing amount. For example, a contractor earning £250 per day could borrow £258,750.
Employed Fixed/Short-term Contractors
This is very similar to self-employed contractors as it’s likely you’ll be receiving a daily rate and contracted into a role for a specific time, the main difference being that you are still an employee. Lenders will therefore still class you as one, so again, it would be helpful if you’ve got a history in the area you will be working in.
This can be a grey area depending on which lender you approach. Some lenders may find it difficult to establish who the employee works for and the sustainability of the income. There are lenders out there who will lend to people employed as umbrella workers, but again, you may need a track record.
Zero hours contracts are becoming more and more common in modern day society. Sadly some lenders do penalise people who have these due to the risks associated with them. To put yourself in the strongest position possible, it’s good to evidence twelve months within a zero hour contract to evidence an average earnings but again this varies lender to lender. Some may average on the latest three months payslips!
This was previously seen as very high risk because the workers had minimal rights in the work place. However, thanks to the Agency Workers Regulation which came in back in 2011, agency workers now have the same rights as those permanently employed by the firm. Thanks to this, there are lenders out there who will consider agency workers for a mortgage.
Does any of this resonate with you and want to find out more? At Take Care of My Mortgage, we know that not all enquiries are the same and will require tailored advice to suit them. The advisors we work with are completely whole of market, meaning they are not restricted to a specific panel. This means they are in a great position to help you find the best mortgage possible. To find out more, please complete our simple form and we’ll put you in touch with the most suitable specialist advisor who will be appropriate to your needs.