Contractor/Self Employed Morgages? RIP Self-Cert

bladeuk2001

Hi Gents,

I've been contracting in IT project management since November, so 7 months... The first 3 months of that were with an Unbrella company, the most recent 4 months of that has been through my own limited company.

I take a minimal salary, with the rest coming in dividends.

I'm currently looking for a morgage, but brokers and IFAs are telling me that I need 1-3 years of accounts in order to get a morgage 1 has found a product that considers on a case-by-case basis, but that the rate will likely be about 5.5%!

Are there any other options I can look at?

We have a 40% deposit, and are first time buyers... Affording the morgage won't be a problem, but convincing a lender of that seems to be an issue...

Many thanks.

Regards,
Richard

ajayre

We had the same problem - we needed to have two full tax years of accounts so we simply waited and saved hard. I became self-employed in November 2010 but a partial year of accounts was useless to us for this so we ended up waiting 2.5 years.

Andy

RupertTheCat

I had the same problem when buying both my houses. What we did was just use my earnings, as I was on a salary, but they did allow us to borrow 3 1/2 to 4 times my salary as there were 2 of us paying into the mortgage. Does your partner earn enough for the mortgage company to just use their earnings?

Unfortunately you do need about 3 years of accounts, and mortgage criteria is more stringent nowadays so I imagine it's even harder than it used to be.

geoffky

The problem is you are being punished because the debt junkies took the urine out of self cert and lied and lied and lied...

bladeuk2001

One ray of light, which I'm slightly suspicious about, is that I've done a google search for "Contractor Morgages"... There are lots of website about that say being in this situation isn't a problem, and that a morgage can be agreed on the basis of an up to date CV showing time in the industry, current contract showing daily rate, partial years business accounts and bank statements showing income

I popped by details into one of these sites, and had a call back from the company, who ran through the specifics and said a morgage with the Halifax won't be a problem, at a decent rate of 2.5-3%.

I'm a bit iffy about this though, has anyone got experience?

Also, my other half (understandably) isn't totally keen on a morgage with a company we can't sit accross the table from, and meet face-to-face...

albionrovers

I thought dividends were out of bounds since IR35 was introduced in 2001?

hamster2013

bladeuk2001 wrote: »

Affording the morgage won't be a problem, but convincing a lender of that seems to be an issue...

what makes you so sure that affording the mortgage wouldn't be an issue?
you are currently on a consulting contract - what if you are out of job for a long time ? there is less job security when it comes to contractors than full time employees.
Furthermore, what if you are sick for a week or two one given month? As employee, your contract would cover you if your employer pays you during sick leave.
furthermore, how do you know what you earn these few months is what you will earn next month, or next year? are you basing it on the bast 7 months of experience? Surely you are not getting job offers or contract offers if you walk in with a cv that only goes back to 7 months?
the reason to ask for 3 years of tax returns is that so they can assess that you are capable of maintaining a certain level of income - consulting or contracting is not everyone's cup of tea, and many fail - just like running your own business. the reason you have been successful so far means that you might be able to keep it up for the next few years.... but you have to prove that.

ACG

The problem you have is that lenders now have to have evidence you can afford the mortgage - one way of doing that for self employed people is having evidence of past earnings.

I have lenders i deal with who would consider a mortgage with just 1 years accounts - but theyre taking a big risk on you, hence why the rate is higher.

Being a contractor can sometimes make the situation easier - but it depends on what the contract states. Even with a 40% deposit i wouldnt expect a rate below 5% (Unless your contract is a long one).

5% isnt actually that high - 4 years ago 5-6% was the average. If your going to struggle at rates of 5% then you have to consider what you will do when rates do rise again.

bladeuk2001

hamster2013 wrote: »

what makes you so sure that affording the mortgage wouldn't be an issue?
you are currently on a consulting contract - what if you are out of job for a long time ? there is less job security when it comes to contractors than full time employees.
Furthermore, what if you are sick for a week or two one given month? As employee, your contract would cover you if your employer pays you during sick leave.
furthermore, how do you know what you earn these few months is what you will earn next month, or next year? are you basing it on the bast 7 months of experience? Surely you are not getting job offers or contract offers if you walk in with a cv that only goes back to 7 months?
the reason to ask for 3 years of tax returns is that so they can assess that you are capable of maintaining a certain level of income - consulting or contracting is not everyone's cup of tea, and many fail - just like running your own business. the reason you have been successful so far means that you might be able to keep it up for the next few years.... but you have to prove that.

I appreciate your concern Hamster, and that there is inherent risk with contracting... However, a few things do reduce that risk significantly I believe- Decent levels of retained capital reserves, a morgage that isn't a big stretch to afford, and the fact that my industry seems to be in demand, and will be for some time... So as I say, I don't foresee any difficulties in paying the morgage

tim123456789

albionrovers wrote: »

I thought dividends were out of bounds since IR35 was introduced in 2001?

nope!

(blar blar blar)

longtimelurkersam

I spoke to a co-contractor friend of mine who used:

ContractorMoney,
The Grange,
Blackmoor
Liss
Hampshire
GU33 6BP
Tel. 0845 066 8888
Fax. 0845 060 8888
https://www.contractormoney.com

All they were interested in were his contracts for last 2 years. They didn't ask for any other financials whatsoever and he got a 3.2% discounted offset 2 year deal.

With regards to the Hamsters comments, well the OP got his first contract based on NO contract experience so getting one with 7 months is going to be a lot easier. It is pretty clear that to have gotten the first contract and to have maintained it for 7 months that he must have had relevant experience, so the longer in contracting the better the contracting CV will be but it is not the bee all and end all. The other points Hamster makes are fair, I mean there are lean times between contracts for some contractors. Depending on your day rate and the size of your new mortgage then affordability with long gaps might not be an issue, but no one knows any of that apart from you. I mean if you are on £450 pd + VAT with say a £150k mortgage affordability isn’t really going to be an issue if you don’t work for a while as you should have some of it stashed away for the lean times etc.