End of self-cert mortgages?

**kaiser78** · 13 October 2009, 15:58

Originally posted by SorenLorensen View Post

How bad could this be for contractors or freelancers?

http://www.guardian.co.uk/money/2009...mortgages-axed

Should have very little or no impact as there are a lot of contractor mortgages available that are offered based on providing account returns or projected account returns.

**Freelancer Financials** · 16 October 2009, 00:52

Contractor Mortgage

Some contractors regrettably apply for self-cert mortgages because they have been wrongly advised by mortgage brokers with no experience dealing with contractors. Equally some contractors have been penalised by lenders with an out-of-date bias towards permies. Pre-credit crunch, you could get a self-cert mortgage that was only marginally more expensive than a prime rate deal (full-status). That is not the case any longer. There are very few lenders offering self-cert mortgages and those that do charge an arm and a leg! The arrangement fees are substantial (around 3% of the loan) and the interest rates are considerably higher than prime rates. So avoid self-cert deals like the plague!

The good news for contractors is that there are a number of high street lenders that will provide you with a mortgage offer based on contract rates alone. The mortgage loan can be as much as 4-5 times annualised contract rate and will not require 2-3 years accounts.

Kaiser78 is correct in saying that mortgages are offered to contractors based on account returns. That’s fine as long as you’re drawing most of your annualised income in salary and dividend drawings. However, for tax reasons many contractors draw a minimum salary and also restrict dividend drawings to avoid higher rate tax. Although this is perfectly reasonable tax planning strategy, it also has the unintended consequence of reducing the amount that contractors are eligible to borrow under the standard criteria used by most lenders. This is when it is advantageous to apply to a lender that will provide a mortgage offer based on “annualised contract rates”.

There are a few specialist contractor mortgage brokers that have worked hard over the years to developed strong relationships with lenders in relation to simplifying this process and what qualifies as relevant earnings for lending purposes for contractors. They make use of these contacts with senior underwriters to directly package the mortgage application so that the full earnings potential is taken into account – including earnings which are not paid out but retained within the ltd company for tax planning purposes.

I hope the above helps all those contractors who are concerned about getting a mortgage.

Good riddance to self-cert mortgages!

John