We understand that your circumstances as a contractor may be more complex than a ‘typical’ mortgage client and getting a mortgage could prove challenging. Don't panic, we have provided the following five tips on securing a contractor mortgage.
1. Use a contractor mortgage specialist
It’s very easy to assume that you can get out there and find the right mortgage deal without any help. However, the market in general has tightened, and now there is plenty you need to do before you can be approved for a mortgage. This is especially the case if you are a contractor, and don’t neatly fit within any of the high street lenders’ standard box ticking criteria.
Therefore, we recommend you find a mortgage adviser that specialises in working with contractors, freelancers and the self-employed.
2. Save, save, save for a deposit
The 100% mortgage is a distant memory, and the best rates available now go to those people who have managed to save a deposit. 10% should be enough, but 10-25% is better.
If you have not managed to save this amount for a deposit, or if you don’t have an existing property which is worth more than you paid for it, there will still be mortgages available to you - but you will pay a higher interest rate. The more deposit that you can put into a new property, the lower the interest rates, and the lower the repayments on a monthly basis.
3. Keep your credit rating as good as possible
Your credit score is key to helping you secure a mortgage. Even if you have a good income and a sizeable deposit, you could still have a mortgage application refused if your credit rating is poor. Lenders are being far stricter, so it’s best to avoid anything which may give them a reason to refuse your mortgage. Which means it’s vital to keep your credit rating as good as possible.
4. Make sure your contract is up to date
You will need to have a copy of your signed contract which is totally up to date. This must state the length of your contract, and your current contract rate.
Also, as a contractor you may find that you have breaks in your contracts, but it is important to be aware that too many gaps may have a damaging impact on your mortgage application. Many lenders are now aware of contractors working habits and gaps of up to six weeks on your CV are usually considered normal but any lengthy breaks may be questioned.
5. Stick within your limits – work out what you can afford to pay
It’s important that you are realistic about what you can afford to pay each month. You might find you can borrow more from a lender, but this may result in higher monthly payments than you can actually afford.
It’s also important to consider that interest rates can go up, and if you’re on a variable rate then your monthly payments may no longer be affordable, especially if you’ve pushed yourself to your limit already.