mortgage advice

[Elliebank]

Hi all,

First off, a bit of history on my employment status:

I became a contractor through my limited company on 22.7.13, I have a 12 month contract with the company that I have been an employee with since 6.9.10 (basically I handed my notice in to go contracting and as they didn't want to lose me they took me back on as a contractor)

We got an agreement in principal from virgin money through a mortgage broker and have had an offer accepted on a house. However found out today that the underwriters have refused it as I haven't been contracting for 2 years! (And my mortgage broker also mentioned that it was because the limited company hadn't been trading for 12 months, and I'm not classed as a contractor cos I have set the limited company up?!)

He has approached a few other lenders with our situation who have all said no! To make things a bit more complicated we only have 10% deposit and we are keeping on our first house and renting that out.

Any advice on who I should go to? Or am I just going to have to accept we can't get a mortgage?

Thanks.

[Clare@InTouch]

There are a couple mortgage people who post on here that may be able to help, or your accountant should be able to refer you to someone who's used to dealing with contractors.

This bit of your post:

I became a contractor through my limited company on 22.7.13, I have a 12 month contract with the company that I have been an employee with since 6.9.10 (basically I handed my notice in to go contracting and as they didn't want to lose me they took me back on as a contractor)

concerns me greatly though. It's exactly what IR35 was brought in to prevent. I would recommend you get a full contract review from the PCG, Qdos or Bauer & Cottrell, if you haven't already.

[DS23]

how much would you be borrowing if you sold rather than rented your current property? with a decent deposit you will find it easier to bend a lenders rules or perhaps make it on your partners income alone over a longer term of repayment... not having the books will make it very, very difficult methinks.

edit and wcs. you need to get out of there and get another contract.

[jamesbrown]

I assume this wasn't a contractor specialist broker that knows the lenders to approach and how to approach them? There are various ways to secure a mortgage as a contractor, but being a contractor for less than two years will not in itself prevent you from getting a mortgage, it will just limit the options available when going down the route of income-based lending (from your last two or three SARs). Some companies also will not lend to you unless you've been resident for 2+ years, but I assume that wasn't your problem. Basically, you need a broker that understands the contractor market. Some lenders are well-known for being contractor-friendly, such as Halifax.

+1 on the other posters re: operating inside IR35 on that contract.

[TheCyclingProgrammer]

Did you go to a contractor-specialist advisor? I'm surprised they put forward your application in the first place; they must have known that the underwriters would have wanted to see at least 2 years accounts?

Your problem might be the fact that you only have a 10% deposit. If you had a higher deposit, then a good broker might have had more luck in finding you a lender who would work off your current contract and previous employment history, but it's never going to be easy with only 10% deposit and having only been in business for such a short amount of time.

Again +1 on the above concerns re: IR35 if you haven't looked into this already. The scenario as you stated sounds like it would be certainly caught although that's not guaranteed if you have a good contract + the right working practices. It's always going to be harder to prove if you've basically gone from full time permie to contractor if the job is essentially the same though.

Of course, if it's inside IR35 it's not the end of the world if you're on a decent rate.

[northernladuk]

Best advice is to try using the search options. Mortgages have been discussed ad infinitum. You will find all the basic advice and a raft of people in different positions.

You can use the search as described in the thread below.

http://forums.contractoruk.com/welco...uk-forums.html

Use mortgage as the keyword and you will find over 850 threads in the accounting section alone discussing the same thing over and over again.

Further to that you are going to be pretty screwed to get anything with a 10% deposit, permie, contractor whatever. Expect to pay through the nose for that.

Did you go to a contractor-specialist advisor? I'm surprised they put forward your application in the first place; they must have known that the underwriters would have wanted to see at least 2 years accounts?

Not quite true. I applied with less than 2 years (Halifax at the time I think) and they were more than happy to contact my accountant to verify the one year and current progress using my permie to fill in the gaps. That was a good number of years ago though. Not having 2 years isn't ideal but it isn't stopper for certain lenders. What will be a stopper is that if you introduce ANY ambiguity or complications then the best mortgages disappear from your radar and you will be left with higher LTV offers.

To the OP... You do have an accountant don't you?

Also to the OP. Let's just be clear with your position. You are not a contractor, you are disguised employee and have a huge hatchet hanging over you so I would strongly suggest you factor this in to your financial planning. If you can only put up 10% deposit it sounds like you will run a very high risk of losing your house when HMRC come and tax you properly. I am sure TCP will have a much more relaxed view on this but being an example of exactly what HMRC doesn't want doesn't bode well. IMO you are in a situation when all you are doing is dodging the swinging axe for now. I can't any defence in that situation so you when you do get caught your pants will well and truly be down.

[northernladuk]

Some reading so you really understand the gravity of your situation...

Contractors' Questions: Can a 2-week gap beat IR35? :: Contractor UK

IR35 Contract, IR35 Umbrella Company, Contractor Umbrella Companies - One Click Umbrella

IR35 - GameContractor

[mudskipper]

There are a couple mortgage people who post on here that may be able to help, or your accountant should be able to refer you to someone who's used to dealing with contractors.

This bit of your post:

I became a contractor through my limited company on 22.7.13, I have a 12 month contract with the company that I have been an employee with since 6.9.10 (basically I handed my notice in to go contracting and as they didn't want to lose me they took me back on as a contractor)

concerns me greatly though. It's exactly what IR35 was brought in to prevent. I would recommend you get a full contract review from the PCG, Qdos or Bauer & Cottrell, if you haven't already.

OP may well be operating inside IR35 - nothing in their post to indicate they're not.

[TheCyclingProgrammer]

Not quite true. I applied with less than 2 years (Halifax at the time I think) and they were more than happy to contact my accountant to verify the one year and current progress using my permie to fill in the gaps.

I think you misunderstood me. I wasn't saying that it wasn't possible to get a mortgage without at least 2 years, I just meant that OP's broker should have known that this particular lender (Virgin Money) would require it before it even got to the application stage and should have recommended a more flexible lender in the first place. Lenders make their requirements clear to intermediaries, so they should know what each lender is looking for.

I am sure TCP will have a much more relaxed view on this but being an example of exactly what HMRC doesn't want doesn't bode well.

No idea why you would think that. As I said, OP should make absolutely certain of their status with regards to IR35 and my view is that it's very likely they are caught, based on what they said. But there's nothing wrong with that, as long as they are either paying themselves a full commercial salary or making an IR35 deemed payment. Being caught by IR35 is not the end of the world, nor will it give OP any problems as long as they are taxing themselves correctly.

For all we know OP knows this and has already discussed this with their accountant/had their contract reviewed (as it's not a complete given that it's caught) and it seems a bit unfair on OP to make assumptions about their circumstances.

Going from permie to contractor for the same company in essentially the same role is a huge pointer to being inside IR35, for sure, and the likelihood is that OP's contract is caught, but all contracts are evaluated with regards to IR35 on the same basis regardless. The usual tests apply.

[Power Mortgages Ltd]

I think you misunderstood me. I wasn't saying that it wasn't possible to get a mortgage without at least 2 years, I just meant that OP's broker should have known that this particular lender (Virgin Money) would require it before it even got to the application stage and should have recommended a more flexible lender in the first place. Lenders make their requirements clear to intermediaries, so they should know what each lender is looking for.

What TCP said.

What on earth the original broker was thinking placing the application with Virgin Money?! As intermediaries we have access to lender's criteria and any half decent broker will have a good understanding of a lender's criteria anyway.

Virgin Money need you to have been contracting 2 years to consider lending to you based upon a multiple of your contract rate or they need 2 years or finalized Limited Company accounts in order to assess your as a Limited Company Director. You meet neither of these points so the broker shouldn't have placed the application with Virgin Money in the first place.

I assume you have lost the £99 booking fee you paid to Virgin Money upon submission of the application and also possibly the valuation fee if the valuation was conducted?

If this is the case I would if I were you seek to get the broker to refund these to you from their own money as they are at fault of recommending the mortgage in the first place and had they done their research properly, you wouldn't have submitted an application to Virgin Money and lost out on the £99 booking fee (plus valuation fee if applicable).

I would strongly suggest you to seek help from a contractor specialist though as most lenders wont be able to assist with your circumstances although there are possibilities with only a 10% deposit depending upon your circumstances.