IT Contractor mortgages can be difficult to obtain because the role is typically considered an employed role by the client, however most lenders look at this on a self employed basis. This means that whilst you might consider your income based on your gross earnings, the lender will be looking at a net profit figure over the past two years. This can prove frustrating if you pay for your own expenses, have only just entered this line of work, or have moved contracts frequently. Fortunately there are a number of lenders who will take a different view to this. There are some that are more than happy to consider a day rate, and allowing for some holiday time, will take around 48 weeks and multiply the day rate by this (e.g 48 x 5 x day rate). Other lenders will take the contract terms themselves, subject to some caviats such as the length of the contract, months until expiry, likelihood of a renewal and prior experience contracting. As such sourcing mortgages for clients like this involves fully understanding the terms of the contract, and fitting this to the best value lender that will suit.
Different types of income calculation and the requirements
Considered on a self employed basis
This is perhaps the most common method for lenders to assess applicants who contract. They will consider the Tax Calculations that you or your accountant prepare for you each year. This can have advantages and disadvantages. The advantages might be that previous years were more lucrative then recently, and so income looks better than it would if the other methods were used, its also a simpler way of understanding the income because there is just one annual income figure to feed into their calculations. The disadvantages are more numerous, including the fact that the gross income would be taken after any business expenses were deducted, and the fact that any accountacy practices that were beneficial to your tax would in turn reduce your income on paper. The other issue with this approach is that most lenders will take an average over two years, or might refuse income that has decreased on the previous year.
Considered on a day rate
Calculating income based on a day rate Is reasonable rare, but can result in some much higher loans sue to the way this is calculated. Unfortunately the lenders that do allow this will often require a minimum income of around £75k per annum, however this does vary.
The calculation typically involves multiplying the day rate by 5, multiplying this by a number of weeks to account for holidays etc, usually 46 – 48 weeks, and then using this total as the applicants gross annual income.
Considered on a contract basis
There are some lenders that are happy to consider the agreed terms of the contract as the gross annual income. This calculation is often the most complex to advise on because lenders have some rather complex conditions on whether the applicant is acceptable. This usuelally involves a minimum period left on the contract, the requirement for it to have been renewed at least once, or have been in place for over 12 months and a few other specific rules.
|Lender||IT Contractors accepted?||Calculation|
|Barclays||Yes||Contract & Self Employed|
|Leeds||Yes||Day Rate (£50k min)|
|Natwest||Yes||Contract (£75k min)|
|Skipton||Yes||Day Rate (Min £50k)|
There are other lenders who will accomodate IT Contractors, however these are the top lenders that do. Its possible that when combined with other criteria, affordability or credit factors that the available lenders reduces and we need to approach a less mainstream lender than listed above. In these instances having a broker with in depth knowledge of these kinds of situations and access to all 50+ residential lenders is essential.
Contact us now on 0207 183 9447 for a completely free, no obligation consultation.