Contractor/self employed options

Mortgage_Mark_2

Mortg76 wrote: »

Ok, so if payee is not very viable , can you tell me from experience what you think our chance of success is in the following senario :

Me : 2 years self employed 30,000 (gross) PA 1st year 35,000 (gross)PA 2nd year,
Wife: permanent employment 30000 PA
Loan : 200,000
Deposit :150,000

We have no bad credit and very few extra expenses ,would this be a a 50/50 call or would most banks accept this? I ask also because there is clearly quite a difference between meeting criteria to be considered and actually being accepted .

When you say self-employed, would you intend to run through a Limited Company or as a sole trader? Either way, I'd be reasonably confident that with two years of history at that level this would be achievable.

Mortg76

Mortgage_Mark wrote: »

When you say self-employed, would you intend to run through a Limited Company or as a sole trader? Either way, I'd be reasonably confident that with two years of history at that level this would be achievable.

As a sole trader . Just to be completely clear...you are saying if using the exact same senario as above except my identical income is earned as a contractor with breaks then it is much less viable?

Mortg76

Mortgage_Mark wrote: »

Take your point re: gaps however just a heads-up, lenders who would be willing to lend based on contract value will not do so if you have any more than 6 weeks in any of the last two years, unless there is an exceptional reason for the gap (maternity leave etc).

This is something I just find odd about the lending business .
As I understand the total borrowing amount on a contract style mortgage is usually worked out by the following simple formula : daily rate x days of week worked x 48 weeks x 5 . So if I earn £1000 a week that is £48000 x 5 and I can borrow up to £240000 on that income alone.

Why then if I work only 30 weeks at £1000 can the formula not equal £30000 x 5 and I can borrow £150,000? The gaps in work are of no consequence to the yearly earnings . So long as I can show the same contract is repeated I cannot understand the problem .

Mortgage_Mark_2

Mortg76 wrote: »

This is something I just find odd about the lending business .
As I understand the total borrowing amount on a contract style mortgage is usually worked out by the following simple formula : daily rate x days of week worked x 48 weeks x 5 . So if I earn £1000 a week that is £48000 x 5 and I can borrow up to £240000 on that income alone.

Why then if I work only 30 weeks at £1000 can the formula not equal £30000 x 5 and I can borrow £150,000? The gaps in work are of no consequence to the yearly earnings . So long as I can show the same contract is repeated I cannot understand the problem .

Lenders are using your working history to determine that the way in which you work is viable. In order to do this, they would expect that you have no more than 6 weeks per year off, in line with the holiday that a permanent employee would get. (The 48 week calculation is for one lender, by the way, most use 46 weeks).

Look at it another way; if you've only worked 30/52 weeks, so you've had over 4 months off, there's a risk that you could be out of work for more than half of a year going forwards. If your rate drops, or you're working for one of the banks who often cut rates across the board by 10%, what happens then?

I understand your point of view however with gaps of more than c.2 months, the only way to assess income as a contractor is by way of accounts/SA302's.

Mortgage_Mark_2

Mortg76 wrote: »

As a sole trader . Just to be completely clear...you are saying if using the exact same senario as above except my identical income is earned as a contractor with breaks then it is much less viable?

Yes - you're looking at it the wrong way.

Lets say your day rate is £500. On a 48 week calculation that's £120k a year.

Using self-employed criteria, lenders will take a history of your net profit as a sole trader, so that £120k minus all expenses.

With gaps of more than 6-8 weeks you can't use scenario 1 above.

Mortg76

Mortgage_Mark wrote: »

Lenders are using your working history to determine that the way in which you work is viable. In order to do this, they would expect that you have no more than 6 weeks per year off, in line with the holiday that a permanent employee would get. (The 48 week calculation is for one lender, by the way, most use 46 weeks).

Look at it another way; if you've only worked 30/52 weeks, so you've had over 4 months off, there's a risk that you could be out of work for more than half of a year going forwards. If your rate drops, or you're working for one of the banks who often cut rates across the board by 10%, what happens then?

I understand your point of view however with gaps of m
ore than c.2 months, the only way to assess income as a contractor is by way of accounts/SA302's.

Thank you again for your help.

Two more questions if I may....
1)If I was self employed in the example I put forward and I provide 2 years SA302's is that all I will be judged on under that criteria ? I will still have to provide bank statements as well to prove the SA302's which will show gaps in earnings . This will not count against me to any major degree?

2) I understand many banks have a minimum earning potential on contractor mortgages. Some are requiring as high as £75,000 to be considered. With a self employed mortgage is there a minimum like this or is my £30000 target acceptable to most banks?

Mortgage_Mark_2

Mortg76 wrote: »

Thank you again for your help.

Two more questions if I may....
1)If I was self employed in the example I put forward and I provide 2 years SA302's is that all I will be judged on under that criteria ? I will still have to provide bank statements as well to prove the SA302's which will show gaps in earnings . This will not count against me to any major degree?

2) I understand many banks have a minimum earning potential on contractor mortgages. Some are requiring as high as £75,000 to be considered. With a self employed mortgage is there a minimum like this or is my £30000 target acceptable to most banks?

1 - Depending on the lender most will ask for a few months of bank statements however as a self-employed applicant, it will more than likely be to confirm affordability with 'regular' expenditure, rather than to prove income.

2 - correct, depending on job title; two of the biggest contractor-lenders have a minimum income of £75,000, unless you're an IT contractor. There are however others who do not have a minimum income level, but there will be more scrutiny on things like working history, how long you've been a contractor etc.

Mortg76

Mortgage_Mark wrote: »

lenders have a minimum income of £75,000, unless you're an IT contractor. There are however others who do not have a minimum income level, but there will be more scrutiny on things like working history, how long you've been a contractor etc.

So there is no minimum like that on self employed income?

moreoptions

Bump.

I'm in a similar position (partner perm, me with a 10 month contract - already extended once, was on 6 months originally).

Most lenders have dedicated sites for intermediaries, that explain their particular lending criteria. So far I've found that Post Office mortgages and Virgin Money may be able to help. I'm going to call them tomorrow.

Mortgage_Mark_2

moreoptions wrote: »

Bump.

I'm in a similar position (partner perm, me with a 10 month contract - already extended once, was on 6 months originally).

Most lenders have dedicated sites for intermediaries, that explain their particular lending criteria. So far I've found that Post Office mortgages and Virgin Money may be able to help. I'm going to call them tomorrow.

Virgin Money will not help, full stop. They require you to have had nothing other than either a six or twelve month contract in the past two years, and you have to have half of the current one to run.

Post Office are not particularly useful for using contract income either; the only way that either would be an option would be assessing you as self-employed, i.e. using taxable income details from your LtdCo (if that's how you work).