Mortgages - Do I really need a broker?

[Power Mortgages Ltd]

Hmmmm will they do this for BTL mortgages too? Could be a good way to get investing....

They do offer buy to let mortgages but only direct (not through mortgage intermediaries) which means you are at the mercy of finding a Halifax employee who may or may not know how contractors operate and how that ties in with their own lending criteria. Their rates are very poor too. Through the mortgage intermediary channel all Lloyds Banking Group buy to let mortgages are offered through Birmingham Midshires (also known as BM Solutions). They need you to have been self employed for 2 years but do not need proof of income for buy to let mortgages, instead looking at the rental income the property will generate. So long as that is 125% of the mortgage payments calculated at a rate of 5% on an interest only basis then it passes affordability.

There are other lenders who offer contract rate based lending for buy to let mortgages though and have very good rates including a lender who has an arrangement fee free option up to 75% of the property value which can save a lot of money based upon the fact that in the buy to let mortgage market, arrangement fees tend to be higher than in the residential mortgage market. It's quite common for lenders providing buy to let mortgages to charge a fee based upon a certain percentage of what you are borrowing so the bigger the loan, the higher the fees the lender charges.

Quite often it pays to go for a slightly higher rate with a more friendly arrangement fee as you'll end up better off over the duration of the rate.

For example (using random figures), if you are considering a 2 year fixed rate of 3% with a £5,000 arrangement fee and monthly interest only payments of £1,000 then if there is a 2 year fixed rate of 3.4% with no arrangement fee and payments are £1,100 per month you will save £2,400 over the 2 years but it is costing you a £5,000 arrangement fee to save that £2,400 so you'd be better off going for the higher rate with no fee. That principle applies more often than you'd think when looking at buy to let mortgages so be careful when considering which mortgage to go for. Don't simply be led by the headline rate.

[Mulder]

Yep ... this wasn't from a broker but from one of their inhouse advisors so it's probably not tulip.

I have heard from many others that HBOS (internally) use 365 * day rate, and even after contractors explain, that gives a figure that is too high. They stick with 365 since that is the HBOS process!

[edison]

I have heard from many others that HBOS (internally) use 365 * day rate, and even after contractors explain, that gives a figure that is too high. They stick with 365 since that is the HBOS process!

That's the kind of underwriting skills that got them into such a massive problem in the first place during the financial crisis with property and particularly commercial loans!

[Power Mortgages Ltd]

I have heard from many others that HBOS (internally) use 365 * day rate, and even after contractors explain, that gives a figure that is too high. They stick with 365 since that is the HBOS process!

They do not use 365 * day rate, they use 240 * day rate

[Mark McBurney@CMME]

They do not use 365 * day rate, they use 240 * day rate

...assuming a 5 day week.

Far easier to think [DAY RATE] x [DAYS CONTRACTED IN A WEEK] x 48.

I can't imagine for a second that they'd ever actually use 365 x day rate surely? I can see how lower-risk cases might be put through on effectively fast-track applications, but if it's tight there's no way they'd go with 365 x day rate.

[oversteer]

Which providers will consider 2yrs accounts instead of 3?

I want HSBCs tracker product but they are set on 3, which my first year permie/contractor crossover wouldn't cover me for..

[Power Mortgages Ltd]

...assuming a 5 day week.

Far easier to think [DAY RATE] x [DAYS CONTRACTED IN A WEEK] x 48.

I was illustrating the maximum number of days they would use to show how far away it was from 365 days

Which providers will consider 2yrs accounts instead of 3?

I want HSBCs tracker product but they are set on 3, which my first year permie/contractor crossover wouldn't cover me for..

A large number of lenders only need 2 (more than those who need 3 years), it is just the notoriously difficult lenders like HSBC who stick to 3 years accounts but I have known them to offer contractors' mortgages with less than 3 years finalised accounts. I believe this may have been down to the fact they were Premier Banking clients though and possibly business bank account clients too.

[Jeebo72]

Which providers will consider 2yrs accounts instead of 3?

I want HSBCs tracker product but they are set on 3, which my first year permie/contractor crossover wouldn't cover me for..

I'm with HSBC and they do want 3 years accounts. But really easy to sort out, and good rates if you got those 3 years...

[TheCyclingProgrammer]

FWIW, my broker has recommended to me a deal with the Coventry Building Society - we aren't going to be looking for a few more months yet and that might not be the best deal available by then but they were happy to calculate affordability based on my last years net profit + my director's salary (and my partner's if she'd been on the payroll for the whole year but she hadn't) with a very generous multiple (4.5x I think).

They do still require at least 2 years worth of accounts to support the application however. The deal was about 2.5% fixed for 2 years with a 20% deposit. The net result was that they offered us more than 50% more than we actually needed, giving us a bit of flexibility. No AIP as yet though. I'm not sure if I can advertise who my broker is but I'm happy to pass on the details to anybody if they want to PM me.

One caveat: I tend to take on project and consultancy work that is generally short term rather than taking on consecutive longer term contracts. More like a "freelancer" than a "contractor", if you like. So finding a mortgage based on my contract day rate and/or current contract wasn't the best option for me. It might be different for you.