Umbrella Company Mortgages

[XJ75]

I’m a contractor operating through an umbrella company. I thought this would make things like mortgages easy because I’m technically an employee and get payslips etc. But I’ve realised that my payslips are structured in such a way that my it looks like my basic salary is minimum wage and the rest of my earnings are a bonus. This seems to be a legitimate approach and there’s a bit of detail here:

https://www.contractorumbrella.com/resource/your-p...

My concern is that I’m guessing most mainstream lenders won’t understand this and will see the bonus payment as not guaranteed (even though it is guaranteed while I’m in the contract).

Am I going to be stuck choosing from a section obscure lenders with less than ideal rates, or am I worrying about nothing?

Thanks.

[roadsmash]

Are the bonuses actually properly guaranteed and do you have that in writing?

[XJ75]

It’s not a bonus it’s just the way the payslip is structured. I get paid a daily rate, that amount multiplied by the number of days I work is paid to the umbrella company. For reasons that aren’t clear to me on the payslip they separate that amount into a basic salary which is equivalent to the minimum wage, and then the balance is shown as a bonus.

It’s madness, it’s not a bonus at all, the only way I wouldn’t get paid that amount is if I didn’t work any days. I’m sure there’s a reason they do it because it seems to be common practise, but I suspect it’s going to cause me a headache when I come to remortgage.

[roadsmash]

The payslip says it’s a bonus, so to the lender, it’s a bonus. You will find it easier getting a mortgage if the bonuses are contractually guaranteed and can be proven as such.

[XJ75]

Yeh that’s what I feared. Think I’ll have to use a broker that understands contractors.

[Caddyshack]

I am a mortgage broker.

Some lenders will work off the contract day rate.

A lot of the umbrella companies are a con as you only pay tax on the basic and the bonus is not taxed, the quote it as a loan as you may not work a full year etc...then they disappear before HMRC catch up.

[UpTheIron]

Use a broker who understands/specialises in how you are paid.

I've taken out 2 different mortgages as a contractor (albeit with my own Ltd) and a few years ago now but back the specialists would look at your work history, daily rate and current contract and make an offer based on that.

[Caddyshack]

UpTheIron said:

Use a broker who understands/specialises in how you are paid.

I've taken out 2 different mortgages as a contractor (albeit with my own Ltd) and a few years ago now but back the specialists would look at your work history, daily rate and current contract and make an offer based on that.

Much easier as contractor with own ltd as contract is with you, the umbrella co may hold the contract so the op may just be on a day to day deal in the eyes of a lender.

[XJ75]

Caddyshack said:

I am a mortgage broker.

Some lenders will work off the contract day rate.

A lot of the umbrella companies are a con as you only pay tax on the basic and the bonus is not taxed, the quote it as a loan as you may not work a full year etc...then they disappear before HMRC catch up.

Yeh I was very careful when choosing my umbrella company. This one is definitely legitimate, I pay full PAYE on the whole lot, on top of the employer's NI. Painful!

[Caddyshack]

XJ75 said:

Caddyshack said:

I am a mortgage broker.

Some lenders will work off the contract day rate.

A lot of the umbrella companies are a con as you only pay tax on the basic and the bonus is not taxed, the quote it as a loan as you may not work a full year etc...then they disappear before HMRC catch up.

Yeh I was very careful when choosing my umbrella company. This one is definitely legitimate, I pay full PAYE on the whole lot, on top of the employer's NI. Painful!

What do you do as a job? I will try and post up a few suggestions

[XJ75]

Software engineer. I used to work via a limited company but closed that to take a permanent role. That didn't work out but then you're not allowed to open a new limited company doing the same thing within 2 years, so I was stuck using an umbrella company.

Although TBH with the incoming IR35 changes, using limited companies for this kind of work is likely to be a thing of the past anyway.

Edited by XJ75 on Monday 14th September 21:18

[omniflow]

XJ75 said:

Software engineer. I used to work via a limited company but closed that to take a permanent role. That didn't work out but then you're not allowed to open a new limited company doing the same thing within 2 years, so I was stuck using an umbrella company.

Are you sure this is correct? Or is it related to how you got the residual money out of the company - e.g. MVL?

[Caddyshack]

I have a feeling that Halifax may still allow this under their contractor policy if you have a good track record.

[worsy]

omniflow said:

XJ75 said:

Software engineer. I used to work via a limited company but closed that to take a permanent role. That didn't work out but then you're not allowed to open a new limited company doing the same thing within 2 years, so I was stuck using an umbrella company.

Are you sure this is correct? Or is it related to how you got the residual money out of the company - e.g. MVL?

You can open a limited if you can prove that you did not intend to take advantage of the MVL process. For instance if you took a perm role, closed down and then the employer went bust, or you were made redundant, you may legitimately claim that you did not intend that to happen.

If you simply didn't like the work and subsequently resigned, then less so.

IANAL
IANAA

[XJ75]

omniflow said:

Are you sure this is correct? Or is it related to how you got the residual money out of the company - e.g. MVL?

I did do MVL, I'm not 100% sure what the rules are in other situations but I was advised that I couldn't do it within 2 years.

I closed it down for a permanent role and then left that role as I didn't enjoy it, so in HMRC's eyes I could be seen to be abusing the system.

[Killer2005]

Caddyshack said:

I have a feeling that Halifax may still allow this under their contractor policy if you have a good track record.

Leeds Building Society were quite sensible on contractors.

Accord now have similar.

[hyphen]

XJ75 said:

Software engineer. I used to work via a limited company but closed that to take a permanent role. That didn't work out but then you're not allowed to open a new limited company doing the same thing within 2 years, so I was stuck using an umbrella company.

Not you are not allowed, but a case of having to pay the additional tax saved by ER I believe. So just depends on how fat the company was when slaughtered.

[XJ75]

hyphen said:

Not you are not allowed, but a case of having to pay the additional tax saved by ER I believe. So just depends on how fat the company was when slaughtered.

Yes good point, there was enough in the company to not make it worthwhile for me.