Is paying min dividends/salary going to create problems with mortgage applications ?

[Lumiere]

My Ltd has been heavily contributing to my SIPP (using past 3 years' allowance) which I think will leave us with minimum dividends this tax year - £2K divs + 10K salary x 2 people ?

Is it going to cause problems when applying for mortgages later this year (SIPP <> income ?), or there are some providers who look at the current contract's rate instead for affordability ?

How understanding are high street banks of contractors nowadays, still advisable to go through specialist ? It's been a while ..

[WTFH]

Have you got a nice healthy deposit?
You’re probably best to go through a broker who works with contractors, but I’ll leave further advice up to those more knowledgeable than I.

[Maslins]

In our experience lenders tend to either:
- look at your personal income ("SA302", in which case like you fear, you may struggle to borrow much due to low dividends/salary),
- look at company profits (in which case you may well be fine...unless most of your annual profit's going into your SIPP).

[edison]

The mortgage criteria are probably tougher than when I last remortgaged two years ago right before interest rates started rising. If you go to a broker that specialises in contractors they can take advantage of deals that are offered by working with the lender's underwriter looking at your specific circumstances and contract rate/history.

Some high street lenders are contractor friendly, some definitely are not. You'll probably be asked to provide three years of accounts and also explain how you're going to repay the mortgage given you haven't been paying yourself much in the way of salary and dividends recently.

[Ketto]

If you go through a specialist contractor broker they can find deals based largely on your day rate. When i have done it the lenders have been most interested in:

1 - day rate in current and previous gig
2 - have you had recent (last 3-5 years) gaps, if yes what were the reasons
3 - duration remaining on current contract. At the point of application most wanted three months if i remember correctly.

Try Contractor Mortgages Made Easy. Have used them several times over the years.

[northernladuk]

No it's not a problem. I must have had something like five mortages in my contracting career and despite being over a long period not one of them was a problem and the rates I got from contractor friendly banks was comparable to standard market rates. As Maslins said they'll want your SA302, your day rate and a ton of questions on your situation. Each lender has different criteria. One will want 3 or 6 months left on your contract, another won't like breaks in your career and so on so got to fill that in and a broke will go find the products that match your situation.

I've used Freelance Financials for all of them including BTL's and bar a long questionnaire it's been painless.

[Dactylion]

Maybe not Problems - but challenges :-)

As many have mentioned - the mainstream box ticking players "don't understand/don't care"

But there are plenty of others that do.

[Martin@AS Financial]

As a contractor, when it comes to securing a mortgage, you are in a really fortunate position as your income can be assessed in 3 different ways.

1. Certain lenders can use the gross value of your day rate contract subject to certain criteria. The benefit to you here is that it allows you to work in a tax efficient way whilst essentially borrowing against your turnover.

2. Salary and dividends (most lenders)

3. Salary and net profit (certain lenders)


Hope that helps.

[sreed]

My Ltd has been heavily contributing to my SIPP (using past 3 years' allowance) which I think will leave us with minimum dividends this tax year - £2K divs + 10K salary x 2 people ?

Is it going to cause problems when applying for mortgages later this year (SIPP <> income ?), or there are some providers who look at the current contract's rate instead for affordability ?

How understanding are high street banks of contractors nowadays, still advisable to go through specialist ? It's been a while ..

Lumiere It depends on what you mean by 'create problems' and how hung up you are on rates.

Assuming you use a broker, it won't stop you from getting a mortgage but it might well mean you end up having to settle for a slightly more expensive lender.

I was in a similar position (ltd co dir with very low NP in latest year due to large employer pension contributions) at my last remortgage.

The lender my broker eventually ended up with was Clydesdale (owned by Virgin) which was about 0.75% more expensive than the cheapest at the time (High street bank) that I would have been able to access if my circumstances were that of a 'normal' contractor that didn't make excessively large pension contributions. My mortgage being around 300k, that will cost me an extra 10-11k over the 5 year fix.

There's some luck involved in the rate you get as well. For instance in my case Clydesdale wasn't competitive at the time but as per my broker it does offer super competitive rates at times. So it's possible that if I'd applied at another time I wouldn't have had to pay a premium because of my circumstances.

As others have mentioned above, do use a good broker, they're worth their weight in gold.

[fiisch]

You'll likely end up with a Halifax mortgage.

Affordability is based on 48 x 5 x day rate.
Requires at least 4 weeks remaining on your contract.

Very very laid back approach to contractors (arguably too generous imo), but never had an issue when getting a mortgage.