Are Halifax mortgages contractor friendly?

[Sausage Surprise]

Understood, and I think it's something I will find out.

Also rather than approaching Halifax directly, I think I'll go through ContractorMortgagesUK, my accountants recommend them.

In the process of doing this myself and have AIP from Halifax too.

[Power Mortgages Ltd]

Halifax are a contractor friendly lender, yes.

The definition of 'contractor friendly' really relates to how they will assess your income as a contractor.

There are the following two ways:

The conventional method

If you are a Limited Company Director and own over 25% of the shares of the Limited Company then most lenders will define your income as the salary and dividends you have declared through the Limited Company, typically over a minimum of 2 years, or with some lenders, 3 years. It does not matter if you are a contractor or not in this method, they are assessing you as a Limited Company Director.

Incidentally, Halifax will work from 1 year of accounts on this basis nowadays without the need for the 2 or 3 years accounts but are one of the few lenders who will, almost all others need 2 or 3 years.

The way this is calculated is normally on the basis that they will average the income over the 2 (or 3) years accounts or use the most recent year's figures, whichever is lower. Therefore if your salary and dividends have increased year on year and your most recent year is higher than the previous year, they will use the average. However if you have declared a lower income this year (you may have accepted a lower contract rate role or taken some time out for example) then they will use the latest year's figures only, regarless of what you may have taken in previous years.

The contractor method

If you do not have 2-3 years accounts (or 1 year in the case of Halifax) or you have kept your salary and dividends low for obvious reasons which do not support the amount you need to borrow (see below for explanation on how much you can borrow) then you can look to use your contract as your proof of income. There are a few lenders who will allow you to do this but the choice is a bit more restricted than taking the conventional approach as lenders like HSBC, Santander, Natwest and Nationwide amongst others will all insist on using the conventional approach to assess your income.

Halifax simply state that so long as your day rate is £312.50 or more then they will assist (you no longer have to be an IT contractor only, this change came about in May and Halfax will look at contractors in all industries now) using your contract as your proof of income, that is if you work a full time contract (5 days a week). If you work an adhoc contract of say, 2 or 3 days a week and not a 'full time' contract then the contract rate has to be £500 per day or more.

They will take your day rate, say £400 and annualise this over a 48 week year (£400 x 5 days a week x 48 weeks per annum) to give you an income of £96,000 which would be a figure similar to the turnover of your Limited Company before any administrative costs and corporation tax are deducted. This will always be more than the figure of your salary and dividends combined, especially if your Accountant has been efficient with the accounts (for example retaining profit within the Limited Company).

Using both methods, the amount you can borrow varies from lender to lender and will not only depend upon the lenders typical 'income multiple' (which Halifax is up to 5 x income) but also how much unsecured debt you have (credit cards you keep balances on each month and do not clear, hire purchase agreements and personal loans) as well as number of financial dependants you have (children and non earning partners).

Halifax can even assist for a day 1 contractor / day 1 Limited Company Director based upon the contract rate so long as you have been working (employed or self employed) over the last 12 months in the same line of work so you do not need a contracting history in this instance.

Normally at application stage you need to have around 4-6 weeks left on the contract term otherwise an Underwriter may ask for proof the contract will extend or a new contract from another end client.

Hopefully that provides you with an explanation of how it works?

Please feel free to inbox me if you have any questions, I would be happy to assist and can provide my contact details too if you want a chat? Power Mortgages Ltd (sorry about the user name saying Ldt, I had fat finger syndrome when entering my username!) is a whole of market mortgage brokers who specialise in providing mortgages and related protection products for contractors.

I have personally helped a few of the forum members already (which I am aware of) and thank any of them who have recommended me.

Ben Rogers