Being a contractor or freelancer offers you much more flexibility and independence, but also makes your income and working circumstances uncertain and this can influence a lenders’ decision when considering your application for a mortgage.
If you’ve gone to a bank to discuss mortgage options, they have probably told you it’s required to have 2-3 years of company accounts to secure a great mortgage deal…In this article I’m going to explain why they are completely wrong using a story from a previous client of mine.
Who knew banks were getting it wrong?
Being self-employed does not mean you are forced to accept an unfavourable mortgage deal, even if you have recently left a full-time job to start your own business. It also doesn’t mean you have to wait 2-3 years to build up your company accounts in order to even start applying! We’ve worked with 1000’s of self-employed professionals over the last decade, so we know a thing or two about the obstacles that’ll be in your way and how to easily over come them.
I’m going to tell you a personal story of a previous client who is a contractor and how we helped him borrow 300% more on his mortgage than if he went to a lender by himself.
James has been contracting for 6 months and is ready to purchase a house for his family. Instead of seeking mortgage advice by coming to a company like us, he goes straight to the bank to see what kind of mortgage he can secure. Before he’s even able to have a look at what mortgages are available to him, the bank asks for at least 2 years of his limited company accounts before they can even look at any sort of mortgage funding. This makes James feel disheartened and stuck, which is the opposite to the feelings you should have when trying to buy your first home!
This is why we love our business: instead of basing his income on 2 years of your company accounts, we use bespoke contractor underwriting which will allow the bank to use the following calculation to work out James’ income. His company accounts show a salary of £10,000 per annum, he also takes a dividends of £30,000 per annum. The bank will then apply their standard income multiple of 4 or 4.5 times the income, meaning the maximum loan James will get is £160,000 – £180,000, which obviously is not enough.
When James came to us, we took his day rate of £400, multiplying that by 5 days a week, then at 48 weeks will give him an income of £96,000. If we then multiply this by 5, he is able to borrow up to £480,000, which is a 300% increase – compared with £160,000!
If you are contracting, freelancing or own a business, and this sounds like something you are experiencing at the moment or you recently decided you’d like a mortgage, book an appointment here now for a free consultation with one of our friendly advisers!