Contractor mortgages and stuff

[d000hg]

Have never tried to get a mortgage as a contractor but well aware that its not so easy from traditional lenders anyway.

Not true according to our advisor. If you can show consistent earnings they'll take your money, especially if your wife has a permie income?

Current mortgage outstanding - about £130K. Wife wants to move, buy a new house, but keep the old one and rent it out. In effect, get a new mortgage for the new house.

Not even sure if I can get a mortgage for 2 houses. (Although, I am in Wales - 5 bed detached for under £400K - sorry for all you lot in the south east).

But, is the original lender even going to allow this? I always thought you had to get a buy-to-let mortgage if you were going to do this?

We have a similar situation. Basically we're told the lender wants to be able to ignore the old property i.e. be happy it doesn't affect your ability to pay for the one you're buying. If it is already let for example. Or maybe if you can get an official letter from the agent saying what they can let it for.

You do not necessarily need to get a BTL mortgage to let your existing home, many lenders will give you permission on the current mortgage, maybe with an annual fee. Ours let us keep our 1.15% deal which was wonderful So I wold personally not want to get a new BTL, but sort out letting your home and buy a new one. Timing could be the issue though, a bit of a chicken-and-egg situation. We left our house and rented, so we don't have the issue.

[Freelancer Financials]

Hi John,

Not sorted yet. Assuming I could keep existing mortgage as planned, wouldn't any additional borrowing still be limited to what the income multiples decide?

I.e. If I currently borrow £100K and my salary/contract dictates I can borrow £200K max, then my 2nd mortgage can only be for £100K?

If you get "consent to let" from your existing lender, then the new lender will ignore that commitment. And you will be able to use the full £200K borrowing for the new property. Halifax, is the only lender that will ignore properties in the background, unless it is with them or in the Lloyds/TSB Group. If you have a residential property and want to let it out, officially you should seek permission from the lender otherwise you're in breech of your mortgage contract.

Let’s assume we use your contract rate to assess your affordability: This allows you to borrow substantially more than if you were being assessed using accounts. In order to calculate how much you can potentially borrow, multiply your current contract rate by the number of days contracted to work in a week and then by 46 weeks in a year. We can generally secure a mortgage of around 4.25 times this total. Therefore, a contractor on £300 per day could potentially borrow £293,250.

It also depends on your occupation, IT Contractors are assessed on 48 weeks and a multiple of 4.5, therefore a IT Contractor on £500/day can potentially borrow £500 x 5 x 48 x 4.5 = £540,000.

If you want more advice, you can always contact me at Freelancer Financials.

[Freelancer Financials]

Does depend on the lender, my wife had no problem getting consent to let from Northern Rock a few years ago on her flat. I however have a mortgage with C&G and they would not consider it, and would need to switch to a BTL mortgage.

I'm a contractor so can afford to have a spare house in Devon.

Had to wait til I had 2 years of accounts before the major high street lenders would consider me.
Not hard to get a mortgage, just hard to get a reasonable rate.

GL in your search.

P.S. I have a LARGE 4 bed victorian house in Tottenham and that was just sub 400k. Finsbury Park on the other hand 3 bed basement flat, 400k.

Location Location Location as they say.

John Yerou, Freelancer Financials: For future reference Halifax will assess all self employed people using one years accounts, it will be based on salary and dividends. Woolwich currently assess contractors using only one years accounts too.

And if your an IT Contractor, we have lenders that will assess you with less than one years trading history, using your contract rate.

[psychocandy]

If you get "consent to let" from your existing lender, then the new lender will ignore that commitment. And you will be able to use the full £200K borrowing for the new property. Halifax, is the only lender that will ignore properties in the background, unless it is with them or in the Lloyds/TSB Group. If you have a residential property and want to let it out, officially you should seek permission from the lender otherwise you're in breech of your mortgage contract.

Let’s assume we use your contract rate to assess your affordability: This allows you to borrow substantially more than if you were being assessed using accounts. In order to calculate how much you can potentially borrow, multiply your current contract rate by the number of days contracted to work in a week and then by 46 weeks in a year. We can generally secure a mortgage of around 4.25 times this total. Therefore, a contractor on £300 per day could potentially borrow £293,250.

It also depends on your occupation, IT Contractors are assessed on 48 weeks and a multiple of 4.5, therefore a IT Contractor on £500/day can potentially borrow £500 x 5 x 48 x 4.5 = £540,000.

If you want more advice, you can always contact me at Freelancer Financials.

Cheers. Bit confused about whether its just Halifax or all lenders who will ignore commitment if you get consent to let.

I guess the killer here though is if current lender will give consent to let. Any idea what First Active (now RBS) are like for this?

Scary amount to be able to get though methinks. Buy a street here for that :-)

[psychocandy]

John Yerou, Freelancer Financials: For future reference Halifax will assess all self employed people using one years accounts, it will be based on salary and dividends. Woolwich currently assess contractors using only one years accounts too.

And if your an IT Contractor, we have lenders that will assess you with less than one years trading history, using your contract rate.

Almost two years now. Current lender (RBS) told me to come back after two years when I asked them for additional borrowing last year. :-(

[SandyD]

I did the same a couple of years ago, asked the lender for a consent to let ( they still haven't got back to me) and bought a house closer to work.

I kept the heavy mortgage on the old house not the new one, this is because one can set off the mortgage interest payments against the rental income, hence I do not need to pay any tax on the rental income (which just about pays for the mortgage anyway)

But now my fixed period will be completed in a few months and I would need to go on variable rate so I may need to change the mortgage a bit and see the best offer.

[northernladuk]

RBS are bloody great. I mentioned it tentatively when I applied for my mortgage last week and the woman told me just to request a consent to let form (which takes a week for some odd reason) and pay £200. No questions.

[northernladuk]

I did the same a couple of years ago, asked the lender for a consent to let ( they still haven't got back to me) and bought a house closer to work.

I kept the heavy mortgage on the old house not the new one, this is because one can set off the mortgage interest payments against the rental income, hence I do not need to pay any tax on the rental income (which just about pays for the mortgage anyway)

But now my fixed period will be completed in a few months and I would need to go on variable rate so I may need to change the mortgage a bit and see the best offer.

It's up to you to get the consent to let, not them. If you are letting your house without consent you could get in to a lot of trouble. Firstly for the fact that any new mortgage provider may ask for evidence of the consent and secondly you could get in to trouble with the actual mortgage provider for not making sure they know. Bad idea to let against a residential mortgage without the correct agreement. It could be against the terms of the mortgage which would give them a right to pull it.

You can only claim the interest of the mortgage which can't be the value of the rental income so leave some tax to pay surely?

[Freelancer Financials]

Cheers. Bit confused about whether its just Halifax or all lenders who will ignore commitment if you get consent to let.

I guess the killer here though is if current lender will give consent to let. Any idea what First Active (now RBS) are like for this?

Scary amount to be able to get though methinks. Buy a street here for that :-)

RBS is normally fine providing "Consent To Let" but lenders are beginning to tighten this as many home movers are choosing to Rent their existing properties rather than selling them. Consent to Let was intended to help people who want to move properties and haven't yet got a buyer for their existing home. So rent it until they can sell. It's not intended to replace a Buy to Let mortgage.

However, many people get away with staying on a "consent to let" because 90% of lenders do not police or follow-up after consent is giving.

The reasons why a lender will not give consent to let are:

1. They believe you have no intention to sell the property in the future and suspect you are just trying to avoid paying a higher rate on a BTL mortgage.
2. The property you are buying is just round the corner and it's obvious you want to keep the existing house as an investment property.
3. The rental assessment is such that the rental income doesn't cover the mortgage cost

Reason's they will give consent to let:

1. Job relocation, need to move property because you are moving to be closer to your new job
2. Plan to sell your home within 12 to 24 months of moving to a new property.

However, each lender has different criteria and person is assessed on their particular set of circumstances.