Mortgage based on contract rate while using umbrella

[Power Mortgages Ltd]

Typically a combination of the payslips and contract would be sufficient to explain to a lender why the net income received onto the bank statements is lower than the income stated on the application, which as pointed out previously would be a multiple of your contract day rate, typically over a 46-48 week year. The contract would stipulate you as the consultant who is working the role, your contract day rate and duration of the contract so it is no different to a Limited Company contract in how the lenders look at it. Contractor friendly lenders understand that contractors are typically remunerated either by way of their own Limited Company or an Umbrella Company but whichever way they are remunerated, the Limited Company/Brolly is effectively just a shell to be paid through and the fundamental income you receive is your contract rate.


Take a permy employee, they are able to borrow on their gross basic income, a figure before tax and NI deductions. Contractor friendly lenders understand that lending on a annualised multiple of the day rate is effectively treating a contractor in the same way as a permy employee in that sense so a bank statement showing the net amount left over after tax, NI and pension deduction is not going to reflect the gross contract income and they are fine with this. Pension deductions are, after all normally set by yourself so in times of hardship you could reduce or even stop your pension contributions nd your net income would increase. Therefore a lot of lenders ignore pension deductions altogether. So the contract will show a day rate and the payslips should back this up with a gross 'invoiced/paid' figure per week/month (possibly minus agent/brolly deductions). So long as that gross figure is about right to the day rate and number of days the contract states you work then the contract can be used as evidence of income.

In reality a number of lenders do not even assess the bank statements nowadays anyway although as advisors, it is always something we need to assess to ensure affordability is evident. Some lenders have effectively passed us, the brokers this responsibility.

Hope that helps.

Ben

[CMMEgroup]

Lenders will vary the level of acceptable income based on an annualised assessment of the day rate. This varies from lender to lender; some use 46 weeks and others would take 48 weeks, although there are further variations that are less simplistic.

In many cases the fact that pension contributions are being taken out of the income before the funds are paid into a bank account does not prevent borrowing being offered by a lender. Most will be looking for a level of income that is feasible, based on the number of days a contractor confirms as being consistently worked per week. As long as the monthly mortgage repayments and regular outgoings fit within the level of income evident on the bank statements, it’s unlikely that a lender would reject the application.

[Hobosapien]

I'd be surprised as the contract is between the brolly and the agent. You just get paid your wage and that's what the mortgage is based on. Interested to see what the answer is though.

I too thought it may be tricky as the contract is between brolly and agency and I'm just an employee of the brolly, but having looked through the paperwork from the brolly the employment contract includes rate of pay based on assignments and an assignment confirmation showing the true day rate I agreed with the agency/client.

So all the info is there, just would likely require a contractor specialist broker to be able to make sense of it all. A small price to pay for getting the right expertise.

[northernladuk]

Having read some FAQs on specialist contractor mortgage broker sites it looks like it's possible to get a mortgage based on contract rate even when using an umbrella, but they also say as part of the documentation required by the mortgage lender underwriter is a need to see proof of contract income via bank statements.

I'd be surprised as the contract is between the brolly and the agent. You just get paid your wage and that's what the mortgage is based on. Interested to see what the answer is though.

[MrButton]

Interested to hear some real experience in this both when going via an umbrella and also when maximising your pension contributions via an umbrella.

Specialist brokers I’m sure will know how to deal with this and which lenders to use.

This will surely become more prominent once more and more people are going via brollys when inside ir35

[Hobosapien]

I am sure there are specialist brokers that will work on contract rate, I am more worried about how they reconcile the proof of contract income when via umbrella and large portions are diverted to pension rather than hitting my account post tax.

I'm fairly sure now that the umbrella payslips would be proof enough as it shows the invoice amount and how broken down between tax, pension contributions, and 'take home' pay that is around living wage level. So while my bank account receivables may show me 'struggling' to get by on a living wage the true picture is clear for those that know what they're looking at, hence worth going with a specialist broker rather than try to explain it all to some common practice mortgage provider.

Any other feedback welcome, particularly from those that have arranged a mortgage while in this sort of position in recent times so I can get a feel for what to expect.

I'll have a read of the other info/threads on CUK about mortgages via the various specialist brokers, so I can make an informed decision on my preferred way forward.

[DolanContractorGroup]

I had previously worked with Contractor Mortgages Made Easy, that used to use contract day rates for mortgages.. not sure if they still do mind. They may be worth having a look at..

[Hobosapien]

Having read some FAQs on specialist contractor mortgage broker sites it looks like it's possible to get a mortgage based on contract rate even when using an umbrella, but they also say as part of the documentation required by the mortgage lender underwriter is a need to see proof of contract income via bank statements.

Anyone got experience of this when salary sacrificing as much as possible into a pension via the umbrella (for tax efficiency purposes) so the actual amounts received via PAYE into bank account is not a true reflection of income based on the rate?

I'm still at the weighing up options stage as I could just use most of my warchest instead of getting the mortgage, but while rates are low it appeals to keep some wedge spare for rainy days rather than tied up in a potentially depreciating asset in the medium term. So I haven't made any enquiries to the mortgage specialists yet as I'm sure all you good people have the real inside info from a contractor's perspective.