Could / should a self employed IT contractor take a mortgage
Discussion
Hi all
Wonder what your thoughts are on this one.
Self employed IT contractor with a guaranteed contract up until end of this year. Reasonably confident of a renewal or a perm position thereafter.
Good credit. First time buyer. Single, no dependants.
Properties in region of 160k. Deposit of approx 30k could be managed. Assuming repayments, bills and living costs thereafter of 1k per month approx I could cover a year of unemployement at least, prob 18 months. So no huge worries re. reasonable rainy days.
Should I be thinking of a mortgage, would I be eligible, what kind of rates would I be looking at and what approx monthly repayments would they translate into.
I have been hugely cynical or rising prices lately and the inevitable rate rising having a bit impact upon affordability for many people, and general economic environment come the next GE when I feel there will be more cuts and more pain. But looking at 2 bed houses with a drive in my area at 160k with some room for cosmetic improvements (no potential for extensions though so 2 bed will remain a 2 bed) it does not feel like a huge risk to be looking at these kind of properties and prices
thoughts appreciated
Wonder what your thoughts are on this one.
Self employed IT contractor with a guaranteed contract up until end of this year. Reasonably confident of a renewal or a perm position thereafter.
Good credit. First time buyer. Single, no dependants.
Properties in region of 160k. Deposit of approx 30k could be managed. Assuming repayments, bills and living costs thereafter of 1k per month approx I could cover a year of unemployement at least, prob 18 months. So no huge worries re. reasonable rainy days.
Should I be thinking of a mortgage, would I be eligible, what kind of rates would I be looking at and what approx monthly repayments would they translate into.
I have been hugely cynical or rising prices lately and the inevitable rate rising having a bit impact upon affordability for many people, and general economic environment come the next GE when I feel there will be more cuts and more pain. But looking at 2 bed houses with a drive in my area at 160k with some room for cosmetic improvements (no potential for extensions though so 2 bed will remain a 2 bed) it does not feel like a huge risk to be looking at these kind of properties and prices
thoughts appreciated
There are a number of brokers who specialise in "Contractor Mortgages", I've used one for two separate properties in the past - they will lend based on an annualised contract rate rather than treating you as a small business and wanting to look at 3+ years accounts.
Rates aren't as good as they were though, so don't rule out other High Street lenders however be prepared for lots of pain as many won't understand the nature of your business. Referring to yourself as "Self Employed" when I suspect you are actually a Director, Shareholder and Employee of a Limited Company might not help either.
Being an IT contractor shouldn't be a barrier though.
Rates aren't as good as they were though, so don't rule out other High Street lenders however be prepared for lots of pain as many won't understand the nature of your business. Referring to yourself as "Self Employed" when I suspect you are actually a Director, Shareholder and Employee of a Limited Company might not help either.
Being an IT contractor shouldn't be a barrier though.
It's a bit like saying 'I'm self-employed therefore I can't buy a house'.
Yes your contract may expire and you may never work again but it's unlikely. The only thing I'd suggest is that you allow some slack just in case your income falls.
Yes your contract may expire and you may never work again but it's unlikely. The only thing I'd suggest is that you allow some slack just in case your income falls.
UpTheIron said:
Referring to yourself as "Self Employed" when I suspect you are actually a Director, Shareholder and Employee of a Limited Company might not help either.
No doubt true but I have never understood the logic. A self-employed person might be totally honest, have loads of money and be reliable. A 'director' could be a total shark up to his ears in debt, all assets in his wife's name and about to do a moonlight flit. Extremes of course but you get the idea.Edited by Simpo Two on Monday 14th April 11:32
I recommend ContractorMoney.
Generally the lenders they recommend take a generous multiple of your day rate (I think 260x), so you will probably only be limited by your LTV. As long as you have a few months on your contract you should be OK.
I did have to take a rubbish rate two years ago as I only had a small deposit, but now for my remortgage I can access a better rate.
HSBC seem to have the best rates but are very choosy and you must have three years accounts or they will not consider you.
Generally the lenders they recommend take a generous multiple of your day rate (I think 260x), so you will probably only be limited by your LTV. As long as you have a few months on your contract you should be OK.
I did have to take a rubbish rate two years ago as I only had a small deposit, but now for my remortgage I can access a better rate.
HSBC seem to have the best rates but are very choosy and you must have three years accounts or they will not consider you.
thanks all
yeah sorry im a limited company / director. Think its mostly the fact that I would be a first time buyer, against the fact I am dependant upon the contract renewals etc, so the unforeseen risk or the lack of familiarity is what is concerning
I am however nearing 35, so I guess I really should be doing something
what I do contracting wise is not easily transferrable - should my current contract not be renewed I would indeed find myself between contracts, I would estimate a good 3 - 6 months and probably then more likely to secure a perm position than another contracting position
the multiple of the daily rate thing seems to produce low loan amounts - but a quick glance suggests 3x annualised contractor rate is possible
essayer said:
Sorry, should have clarified, the multiple is used to calculate an equivalent to income, not loan amount. So 260 x 4 x rate or whatever.
I don't know if lenders have relaxed their lending criteria recently, but that kind of calculation mortgage has become very hard to get. It's how I got my current mortgage (pre-2008) on a self-cert basis but when trying to remortgage last year my lender wanted to do the full on "3 years accounts" type certification and wanted me to show a company *profit* sufficient to afford the repayments. I told them that if I was turning in that kind of profit I either wouldn't need a mortgage or else I would fire my accountant for being incompetent. I've been self-employed - and so has my partner - for most of my career, and the whole length of our mortgage.
The key for us was always - always - have 6 months mortgage payments in an account, ready for the time when no new contract appears. Never use it for anything else, ever. Even if you eat out of bins, don't touch the mortgage money for anything else. If you have a contract now, you could start off with just 3 months' worth, but by the time that contract is due to expire you should be up to the full six months buffer.
Then you can sleep at night.
The key for us was always - always - have 6 months mortgage payments in an account, ready for the time when no new contract appears. Never use it for anything else, ever. Even if you eat out of bins, don't touch the mortgage money for anything else. If you have a contract now, you could start off with just 3 months' worth, but by the time that contract is due to expire you should be up to the full six months buffer.
Then you can sleep at night.
Or just walk into the Halifax. (Unless things have changed in the last 6 months since they relaxed their lending criteria even further for contractors) they'll take on first-time contractors (my assumption, but in any case you don't need to provide books) and work on a day rate x 5 (days a week) x 48 (weeks working a year) x 5 (their max multiplier), based on the contract you wave under their noses.
The catch is that you need to be on a minimum pre-tax daily contract rate of £312.50 to satisfy their criteria. And the mortgage rates aren't the best you could get in 'normal' circumstances.
Whether you should go for it is entirely your decision. Contracting as a way of life carries a certain risk. If you can't take the risk, maybe it's not the world of work for you.
The catch is that you need to be on a minimum pre-tax daily contract rate of £312.50 to satisfy their criteria. And the mortgage rates aren't the best you could get in 'normal' circumstances.
Whether you should go for it is entirely your decision. Contracting as a way of life carries a certain risk. If you can't take the risk, maybe it's not the world of work for you.
I've been IT contracting for around 18 months, was already mortgaged with Santander (& hadn't told them that I'd moved from a real job to contracting), approached them for a 'chat' about what I wanted to do over Christmas, they were remarkably pragmatic about it, I don't meet their lending criteria (contracting for 3 years with accounts which is actually 4 years to get the accounts), but they took the view that as I'd gone from a permanent role to contracting doing the same thing they were happy to simply look at my income over the last 3 years which is a nice upwards direction on a graph. They did put me through the wringer a bit - a lot of proof was required & the process took a good month.
A few things which seemed to help the situation:
- Doing the same job - I went from being a consultant working for Microsoft to working for myself on the same product set, doing the same thing, only for more money & for longer with a single client
- I've been continuously employed since leaving my permanent role
- Loads of paperwork showing contract renewals etc...
- A decent deposit, we're putting in 30%, reduces their risk
- My wife has a real job, but doesn't earn enough to have borrowed what we want on her own (nor me)
- I bank with Santander & my savings are there, they had visibility of my finances directly
- I had a single point of contact with Santander which helped immensely, he understood how I work & what the underwriters would want to see & didn't submit the application until we'd provided as much evidence as possible, it went through first time
I've also heard Halifax are contractor friendly, they were my plan B - I would have gone directly there but it made financial sense to stick with Santander.
A few things which seemed to help the situation:
- Doing the same job - I went from being a consultant working for Microsoft to working for myself on the same product set, doing the same thing, only for more money & for longer with a single client
- I've been continuously employed since leaving my permanent role
- Loads of paperwork showing contract renewals etc...
- A decent deposit, we're putting in 30%, reduces their risk
- My wife has a real job, but doesn't earn enough to have borrowed what we want on her own (nor me)
- I bank with Santander & my savings are there, they had visibility of my finances directly
- I had a single point of contact with Santander which helped immensely, he understood how I work & what the underwriters would want to see & didn't submit the application until we'd provided as much evidence as possible, it went through first time
I've also heard Halifax are contractor friendly, they were my plan B - I would have gone directly there but it made financial sense to stick with Santander.
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