A contractor mortgage is made for workers that do not have a permanent position.
It can often be difficult for lenders to evaluate your limited company income because it will likely have varied.
In previous cases, lenders often did not approve many contractors as income fluctuations were seen as a bad thing. However, as contractual work is becoming more and more common, lenders are beginning to approve more contractor workers.
With that in mind, it is still very important that contractors do everything that they can to give lenders an easier choice as to whether they should or should not approve a contractor’s mortgage application.
Below is a list of five tips that contractors should consider to increase their chances and look more reliable towards lenders:
1. Look for mortgages that allow additional payments
In certain periods during the year, contractors will find themselves in a position where they have more money compared to other periods. This is due to having either high value and/or frequent contracts. Having a mortgage that allows you to make additional payments alongside your monthly repayments will put you in a more comfortable position to pay off your mortgage.
2. Avoid lengthy breaks between contracts
Mortgage lenders prefer consistency and do not like the idea of risks. While contractors can enjoy taking time off for holidays and breaks, they should try to limit taking any longer than 5-6 weeks at one time as this may affect the amount in which lenders will choose to lend you. This is because lenders will often monitor previous contracts stretching back from 12-24 months before considering your mortgage application and may be more willing to lend (more) to contractors who are more consistent in repayments.
3. Why you should pay a higher deposit for a contractor mortgage?
Typically, at least a 10% deposit is a good amount to pay upfront when applying for a contractor mortgage. Putting down a larger deposit will enable you to be eligible for a higher range of products and offers. Interest rates can drop just by increasing your deposit to around 20%.
4. Keep your credit score as high as possible
While you can have a high income and even put in a higher deposit, having a low credit score could still be the difference between your application being accepted or not. Ensuring that your credit score remains high (i.e., meeting payments in time or updating the electoral roll when you move house) is essential and can make all the difference when applying for a mortgage.
5. Being realistic about repayments
It is essential that you are realistic about your mortgage repayment, understanding what you can consistently pay off monthly. Calculate what other financial outgoings you have and be sensible when you are putting together your mortgage application, and decide on an amount you know you will be able to consistently pay each month.
For someone who is looking to get a contractor mortgage, following these five tips would be very beneficial, as it gives the lender more reasons to accept your mortgage application. The lender needs to be shown that you as a contractor are reliable, consistent and can make the repayment with no issues whatsoever.