Debunking Contractor Mortgage Myths

Whether you're new to contracting or a seasoned pro, you will no doubt encounter a number of misconceptions about obtaining a mortgage when you work in the way you do. Mortgage underwriting has evolved significantly over the years, and while there are still instances where funding might be challenging, more and more contractors now have access to competitive lending options.

In this article, we will cover a number of the myths around obtaining a mortgage as a contractor.

Myth 1: Contractors are Charged Higher Interest Rates Due to Increased Risk

Myth – The rates offered to contractors are exactly the same as those who are employed. Lenders will either be contractor-friendly or not. Once you find the right lender, the mortgage schemes and interest rates available to you are no different from those offered to permanent staff.

Myth 2: Contractors Must Make Larger Deposits

Myth - While a larger deposit often leads to lower interest rates, contractors can typically borrow with the same deposit levels as permanent employees. Most lenders offer options with deposits as low as 5%, but it's crucial to discuss your specific situation with a broker to determine the best approach.

Myth 3: Contractors Need 12 Months of Contracting History and 3 Months Remaining on Their Current Assignment

Myth - There are mortgage options available to contractors from day one of their contracting careers. In many cases, industry experience is far more important than the length of time you've actually been contracting. There are often requirements for a minimum period of time remaining on the contract, but this can be as little as one month. It's advisable to consult with a specialist contractor broker early in the process to understand how your unique circumstances will be assessed.

Myth 4: Limited Company Contractors Must Demonstrate 3 Years of Company Accounts

Myth - While this may be true if a lender assesses you as self-employed, contractor-friendly lenders focus on your ability to service the mortgage debt based on the value of your current contract, rather than strictly relying on company accounts. If you are being quizzed on the company accounts, it would suggest the lender does not understand your situation and it may be time to seek specialist help.

Myth 5: Contractor Mortgage Applications Take a Long Time

Myth - The time it takes for a mortgage application depends on two key factors: how well the application is prepared and the lender's turnaround times. At My Contractor Broker, we ensure that all the groundwork is completed before the application is submitted. The correct lender is selected, all required documents are gathered, and pre-agreement is often obtained in advance. Surprisingly, contractor mortgage applications are often processed more quickly than those of permanent employees.

Myth 6: Umbrella Company Contractors Must Have 12 Months Remaining on the Contract

Myth – Quite often Umbrella contractors get mistaken (by non-specialist brokers & lenders) as agency workers or zero-hour contractors. A contractor-friendly lender will assess an umbrella contractor on the basis of the annualised contract rate minus some small deductions and often only requires 1 month remaining on the contract.

This article was written by Andy McBride of My Contractor Broker.