Umbrella Contractor Mortgage

Do lenders consider gross or net pay for affordability for umbrella contractors? Will bonuses, commission or expenses be included in income calculations?

Lenders differ in how they’ll assess it. Some will use the net income on your payslips, while others like Halifax and Nationwide use the gross salary from your day rate stated in the contract.

That figure is usually preferential to any contractor looking for a mortgage because it means you can borrow more.

Bonuses and commission will be used, but expenses won’t be taken into account for affordability.

Do umbrella contractors face higher interest rates?

No, absolutely not. You’ll have the exact same rates as a standard PAYE or self-employed borrower.

Are government schemes available to umbrella contractors?

Yes, they are. The shared ownership scheme, Right to Buy and the First Home scheme, for example, are all available to umbrella contractors.

Is it better to wait and switch to a limited company before applying?

I think you’ve got to weigh up the tax situation there, which we can’t advise on ourselves. You would need to talk to a tax adviser.

From a mortgage perspective, it could hinder the process. If you switch to being a limited company director or self-employed through a limited company, the lender is going to want a minimum of one year’s accounts.

We’d be looking at a smaller handful of lenders who would accept that. Most lenders would want a minimum of two years’ accounts.

If you switch to a limited company, you restart the clock on those accounts and would need to wait. Generally, with an umbrella contractor, the income is actually higher using the day rate in the contract than from the salary and dividends in your accounts. The borrowing figure may therefore be lower for you as a limited company director or self-employed.

Should I consolidate debts or improve my credit before applying?

Good credit is always helpful on a mortgage. If you’re looking to consolidate debts, the best advice is to contact us here at Rockstone and we’ll confirm how best to approach it. Advice on this is always given on a case by case basis.

What are the common reasons for umbrella contractors to be declined for a mortgage? How can I improve my chances of being approved?

Common reasons would be poor credit history and high debts, a short contract history or large gaps between your contracts. Those things also have a bearing on how we present the case to the lender.

My job is to package the case and all your documents in a way that the lender will be happy to see – that’s clear, concise and straightforward for the underwriting process. That can really increase your chance of mortgage acceptance.

How should I prepare before applying for a mortgage as an umbrella contractor?

The main advice here is to ensure that your contract states exactly what your day rate is, the hours you work, the contract length and any renewal options at the end of it.

I’ve seen contracts in the past that don’t have all of that information, which can be a red flag for lenders. If you reach out to us here at Rockstone, we can look at the contract for you. We know what the lenders are going to ask for and want to see.

We’ll check that everything is in place and that would, again, increase your chance of mortgage acceptance.

Should I use a mortgage broker who specialises in contractor mortgages?

Using a mortgage broker is always a great idea, especially one that works a lot with contractors. Many lenders can misinterpret the income makeup of an umbrella contractor – they may just take the net pay off your payslips, which can obviously decrease the affordability. We wouldn’t want that to happen.

We will package and present the case in the right way. We’re very confident that we can provide real value to all our clients, and especially umbrella contractors.

Key Takeaways:

• Umbrella contractor mortgages are the same as standard mortgages; contractors get the same deals as permanent employees, and many major lenders are umbrella contractor friendly.
• Some lenders can use a preferential income calculation taking the contractor’s day rate, multiplying it by five, and then by 52 to determine gross annual salary, which is typically higher than using payslips.
• Standard documents include the contract, payslips (3 months monthly/13 weeks weekly), and 3 months of bank statements. The contract must clearly state the day rate, hours, length, and renewal options.
• Switching to a limited company status before applying can hinder the mortgage process, requiring 1-2 years of accounts and potentially leading to a lower borrowing figure.
• Using a mortgage broker helps to ensure your income is presented correctly to lenders, maximising affordability and approval chances.
  
  

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.