Contractor mortgages should be big business on the High Street. They’re not. Most mainstream lenders just don’t get limited company contracting at all.
This is where Contractor Mortgages® double award-winning mortgage team steps up to the plate.
We get contracting.
We know how to extract the value in a contractor’s earnings.
We know how to package that information in a way underwriters can use.
And that’s the difference between a specialist mortgage broker and a generic advisor. Contracting is still a specialised niche. To make sense of it for financial institutions you need someone who knows all its ins and outs.
That’s where we come in. Here’s a little bit more about why we exist at all. And why John Yerou, our founder and MD, had to step in where the High Street failed.
Not all mortgages for contractors are contractor mortgages
Here’s the skinny. Yes, High Street mortgage lenders advertise that they cater for contractors. And in a roundabout way, they do.
But what they’re offering you are self-employed mortgages. These rely on accounts, often at least two years’ worth at that.
If you’re a contractor just starting out, you’ll have no such records. But even established contractors struggle with the self-employed route.
As a tax-efficient entity, limited company accounts show only small drawings and salary. It’s a legitimate tax-planning strategy that’s been around for years.
But there is a problem with that from a borrowing perspective.
The affordability model most High Street lenders apply uses salary and dividend drawings. For contractors, that’s a body blow.
The net effect of using salary and dividend drawings for affordability
Yes, contractors may get a mortgage offer using post-deduction accounts. But the ‘multiple’ lenders apply to low salary and dividends means lower borrowing capacity.
When a contractor’s earning more than ever, this scenario is more than frustrating. Not just for the applicant, but for both parties.
The in-branch advisor can see top line contract earnings are high…
…but they can’t use the retained company profits in their mortgage offer calculation.
The contractor knows that they can afford a much bigger mortgage than is on offer…
…but their streamlined accounts mean they can’t access a decent mortgage loan.
So what’s the solution?
Contract-based underwriting – the way Contractor Mortgages® rolls
Wouldn’t it be great if:
- there was a way that mortgage underwriters could use a contractor’s retained profits?
- an advisor used contract earnings rather than ‘take home’ to work out affordability?
- you could bypass those in-branch advisors who just don’t get limited company contractors?
These were the questions that perplexed John Yerou at the turn of the century. Time and again, mainstream lenders were knocking back high-earning contractors.
After much soul-searching, John began door-knocking. Existing relationships were strong; it was time to leverage those crucial connections.
In 2004, John created the Contractor Mortgages® brand
The Halifax Bank led the way. It was the first lender to implement contract-based underwriting as we know it today. What that did was give John and Contractor Mortgages® a platform.
True, several other well known mutuals had tried similar projects before the credit crunch. But the fallout from it, coupled with recession, forced them to shelve their plans.
That, in hindsight, was a missed opportunity for the early adopters. Even before recession began, the UK was experiencing a burgeoning number of independent professionals.
In IT for the long run
Halifax targeted specialised contractors, working in IT, as consultants and in oil and gas. For all manner of reasons, they earned much more than their employed colleagues. But they could not get a mortgage reflecting their earnings.
The bank responded with intent. The first mortgages Halifax made available to contractors were for those working in IT.
Such workers had high earning potential and demand was – and is – outstripping capacity. One may contend: the perfect mortgage client.
Other mortgage providers then began to see the opportunity. But rather than target just IT contractors, they welcomed all manner of independent professionals.
Again, Halifax responded. They too now welcome contractors from all industries, albeit with minimum earning criteria.
Mortgages for Contractors, and some: the complete package
All the time this market was developing, John didn’t rest on his laurels. He continued knocking doors, helping to shape the way lenders view limited company contractors.
His hard work has paid off tenfold. Through these endeavours, many others have joined the ranks of contractor-friendly lenders since.
Today, for almost all circumstances there’s a mortgage for you:
- first time contracting? No problem; get a mortgage from Day 1;
- remortgaging from your time as an employee? Piece of cake;
- can only raise 5% deposit? Sure, Help-to-Buy is open to anyone with unblemished credit;
- and talking of credit, there are even lenders who’ll assess your application on merit.
Award-winning mortgage brokers
You don’t have to take our word for the claims we make. When you’re talking about a commitment like a mortgage, you should take nothing at face value.
Here at Contractor Mortgages®, we have industry awards to back up our service.
For two years in succession we’ve won top-performing broker in the Mortgage Intelligence Awards.
These accolades aren’t only for our work with contractor clients and lenders alike. It’s also the whole package we provide that sets us apart.
Behind the scenes, we’ve chosen renowned partners to help deliver the complete package. Our service goes beyond getting independent professionals the keys to their door.
We also ensure they keep the roof over their heads come what may.
As a contractor, you’re not availed of the sick pay that permanent employees are. Permanent Health Insurance is there for when illness sidelines you for a duration.
The amount of cover you choose and when it kicks in will all depend on you. Your savings, time served contracting, work and limited company status can all factor.
If you’ve just begun contracting, you may want the benefit to start paying out sooner, not later. Time-served contractors may decide to leverage their savings and see the benefit later.
You’ve worked hard to get where you are, to secure that mortgage. Don’t risk losing it all by not protecting your income. Our income protection guide can help you decide which cover’s right for your status.
Critical illness cover
Contractor income protection is not the same as critical illness cover. The latter is a separate policy that covers serious, debilitating illness.
It pays out a lump sum on diagnosis of many illnesses that could end your working life early.
Stroke, cancer and heart disease are prevalent in society today, despite advances in science. They’re just a few unforeseen but nonetheless impactful illnesses our policy covers.
Contractor Life Cover
Life insurance is a prerequisite to run alongside most contractor mortgages. All contractors should have a policy in place to pay off their mortgage should the worst happen.
But it’s not just about safeguarding your home. It’s about you having peace of mind. It’s about ensuring that those you leave behind maintain their standard of living.
Again, as a contractor, your client provides no death-in-service cover. It’s up to you to ensure your family’s well being once you’re gone.
But there is a way you can make life cover reward you whilst you’re still here and larger than life. Start saving on your premiums today by checking out our relevant life cover.
Pensions remain one of the last true tax-saving measures for limited company contractors. But it’s important to get such a critical aspect of your post-contracting life right.
Your mindset, attitude to risk and age can all influence the type of pension that’s right for you. There’s no one-size-fits-all right or wrong option.
There is, however, one massive benefit available to all limited company contractors. You can pay your contributions from your company bank account before tax. This gives you a huge advantage over permanent employees.
Over the years, paying direct from your company can save you thousands of pounds. Through our partners, St. James’s Place Wealth Management, we can show you how.