Why the self-employed, contractors and freelancers need brokers more than anyone
Nudim Akhtar is a Mortgage Specialist at broker Contractor Mortgages Direct
As brokers we spend a lot of time championing what we do – comparing different products to get the best deal for our customers. But when it comes to servicing the self-employed and contractor markets it couldn’t be more crucial.
Anecdotally, I’ve met plenty of people who’ve been to their high street bank and departed believing they couldn’t buy their chosen property with a mortgage.
How they differ
Self-employed people tend to have strong retained profits, rather than regular income, such as salary and dividends. While lenders tend to want two years’ accounts when assessing the self-employed, some lenders are happy to accept one year, depending on where the customer worked previously and how much they earnt.
With contractors, utilising a day rate can enable them to qualify for a high value mortgage. For example, £300 a day can get you a mortgage of £360,000 which is significantly more than what your salary and dividends could achieve, as the lender would calculate £300 per day as £72,000 per year.
More and more contractors are now finding themselves inside IR35 tax rules. Seeing as lenders still look to assess them on similar terms from when they were outside IR35, they need the help of a specialist adviser to navigate this complication.
Focusing on buy-to-let, some lenders require a minimum income – £25,000 is a common amount. But there are lenders that do not have a minimum income requirement for buy-to-let mortgages, like BM Solutions, The Mortgage Works, Coventry Building Society and Kent Reliance.
However, people in these situations are still being told that getting a mortgage isn’t possible causing them to give up on buying altogether, when they should be directed to whole of market brokers like us.
Going back to the high street
You’d be surprised, but on multiple occasions I’ve taken cases back to high street lenders who previously turned my client away in a branch.
Sometimes it’s a case of presenting the information more accurately – for example making sure the lender knows the client is a contractor rather than a director of a limited company, if applicable.
Meanwhile if you work on as many cases as we have you get an idea of lenders that will accept borrowers as an exception when the case has strong merits.
We also know what the pitfalls are.
For example, lenders can look at customers unfavourably if they have a high debt to income ratio. Therefore, it’s best to ensure that you have not borrowed to your credit limits prior to applying for a mortgage, even if it’s a 0% card. Also, make sure you set up a direct debit to pay your credit card and loan payments, in case you miss a deadline.
Lastly being on the electoral roll is important, which enables lenders to verify your identity quickly.
The value of profit
If you run a company, there are numerous mortgages catering for operating profit and salary.
We’re not talking about unusual names here – the likes of Clydesdale Bank, Virgin Money, Coventry, Halifax and Barclays spring to mind.
If you have adverse credit, there are lenders out there such as Kensington, Bluestone, Pepper Money and Together who could look at your application, as they do not credit score applications.
If your broker knows what they’re doing, there are plenty of options for the self-employed and contractors.
You’re probably aware that brokers, intermediaries, advisers – whatever you want to call us – work by comparing a number of different products from various banks and building societies.
But there are also different types of advisers, as it can pay to go with someone who’s ‘independent’ or ‘whole-of-market’. If they use those terms in their advertising, they should have access to products from the vast majority of lenders (a few lenders only work with a limited panel of brokers).
In comparison, some brokers are part of networks with a limited selection of lenders they are able to use. This can be fine for some customers, but for those with unusual circumstances it may pay off for your broker to be able to access a greater variety of mortgage products.
Remember there are hundreds of lenders out there. Provided you approach someone who’s able to compare them, there’s likely to be one suitable for you.