If you’re a contract worker in the UK you may have been told by many that your options are more limited than those who are permanent staff – but fear not, there’s much more on offer for you than you think.
In reality it’s far from doom and gloom if you get the right guidance on your journey to purchasing a property and in this post, we will break down all you need to know as a contract worker…
Lender’s views on contract workers
So, the bad news first, the most common negative perspective some lenders have is that if you are a contracted worker you are more of a risk.
This is usually due to the fact that your job is not “permanent” and of course, that’s part and parcel in these roles. That concern, rightly or wrongly, is based judging whether you will be in the job long enough to repay the mortgage.
The good news is convincing lenders that you suit their affordability criteria however is far from an impossible task.
For example, if you can simply prove that you have been contracting for a long time successfully – even if for different companies – you’re more likely to be granted a mortgage.
Other key determining factors could be things like how long you have left on your contract, or even if your current contract is expected to be renewed.
Services you could use, like Online Mortgage Advisor, match contractors looking for mortgages with specialist brokers, which is one way to make sure that your circumstance doesn’t affect your lending possibilities.
Day rate salaries will not work against you
If you’re self-employed you are far from alone, there are 1.77 million full-time contractors currently working in the UK and that’s more than ever before in history, according to a 2018 report by Top IT Contractors UK.
As the boom continues lenders have adjusted with the times too. Firstly, they will calculate and evaluate your projected salary per annum using your day rate and how many days you work.
Only thing to remember is that they will also consider holiday too – as they can’t calculate this in advance accurately – many will deduct two weeks from their final figure to include this.
If your contract/salary is pro rata e.g. your contract is six months that will also be noted. If you’re not sure how much you will earn in that instance, handy tools like The Salary Calculator can help.
Other than those key points, your salary and overall application is likely to be treated in the same way as someone who is permanent staff.
Contracting length is not the be all and end all
While having more accounts can indeed work in your favour it’s simply not the be all and end all of getting a mortgage as a contractor.
Most lenders are willing to consider your current contract – in conjunction with your previous work history – as a way to determine your eligibility, so feel safe to have a sigh of relief now.
Unlike the old age methods of checking salaries and leaving it at that, lenders commonly look at your full financial profile to make things easier for everyone.
For instance, other incomes that may get taken into account is:
- Child maintenance received.
- Savings and investments.
- Income from pensions.
This way of checking affordability means most contractors are in a better position when going for a mortgage even if they have just begun self-employment.
Deposits and rates myth busting
Just because you’re self-employed it doesn’t automatically equate higher rates or huge deposits. In most cases similar rules apply to contractors as it does to staff, so if you do decide to pay a big deposit of course you will get a more competitive rate – but the large majority of workers can’t afford to do that.
If you put down the minimum 5% deposit or average 10%, you are in with a good chance of securing a mortgage anyway. Contractors are also allowed to apply for popular government schemes like Help To Buy if a first time buyer, which pays a considerable 20% of the deposit for the buyer who also adds 5%.
The scheme has supported more than 420,000 people get on the housing ladder since launching, so is a great way in to owning a home.
Cut through all of the white noise and you’ll soon find that getting the right mortgage for you doesn’t have to be complicated at all. Armed with your finances are in order and a little research to guide you – contractor or not – you have a great shot at fulfilling your dreams of getting your perfect property.