Reply to: Does taking an Inside IR35 contract have impact on any future mortgage applications?

[Martin@AS Financial]

This will all depend on underwriting and criteria at the time. The good news is that more lenders are starting to understand the impact of IR35 on contractor clients and are becoming more open to the umbrella set up. Some lenders will still work on the your day rate whereas others will work off the payslips.

I wouldn't say that taking an inside contract would have an adverse affect on securing finance but as I say, it will really depend on the criteria at the time.

Contractor friendly lenders tend to be more interested in experience, minimal breaks and the ability to source new work should an existing project come to an abrupt end.


Hope that helps

[northernladuk]

most of my warchest is actually on my personal bank accounts now. I already extracted a hefty amount out as dividends & incurred the taxes. So i would be drawing on "personal savings".

IMO that's not your warchest. That's your personal savings. I guess it's just how people want to manage it so could be the same thing but it's something out of sight for the very worst. Personal savings is available money that is to be spent or invested and is usually the first thing that's dipped in to when people want stuff. I've seen other people say they'll be OK with personal money and when the letter came round one of them actually started crying because he'd spent it all.

If you are happy with your abilities to keep 6 months of money in your personal savings and are 100% you won't touch it then fill your boots, but IMO that's not a warchest and you should be doing something more useful with it.

[BritishLad88]

You can draw on that instead of taking heaps out of your company to fund your next purchase. With mortgage rates where they are at the moment (I read of 0.1% rates on offer the other day to those with a low LTV) it would be daft not to use your equity to full advantage rather than pay tax on drawing out a lump sum from your company.

most of my warchest is actually on my personal bank accounts now. I already extracted a hefty amount out as dividends & incurred the taxes. So i would be drawing on "personal savings".

[ladymuck]

"As much as you can" was a bit of a flippant comment on my part. I didn't mean it literally. But you can shave 10 years off a mortgage and save heaps in interest by just paying an extra couple of hundred quid a month.

Having equity can give you options if, as you say, you want to buy somewhere else, rent out etc. You can draw on that instead of taking heaps out of your company to fund your next purchase. With mortgage rates where they are at the moment (I read of 0.1% rates on offer the other day to those with a low LTV) it would be daft not to use your equity to full advantage rather than pay tax on drawing out a lump sum from your company.

While you're still deciding, I'd be making overpayments but not at such a high level that it left me less of a warchest for funding future plans.

[northernladuk]

Is it always a good idea to overpay as much as you can?

I mean i'm way in a financially better position now than when i took out my mortgage 4-5 years ago & as a result have built up a big enough war chest from various contracts. I could use that to overpay my existing mortgage to have more equity in current property & when i do buy my next one' i'l need to maybe again borrow a lot with a small deposit...

Or
... i'm thinking; since i'm in a better financial position meaning i could potentially borrow more now; i can just remortgage my existing mortgage (as i said before i might keep my existing property so i would end up probably remortgage in converting to a letting mortgage) and use my chest as a big deposit for my next home. Meaning for my next property i would have a bigger deposit & would end up borrowing less.
Would this be a better option than above?

Depends how old you are and your outlook on life. If you are young it probably doesn't make much sense but when you are mortgage free a decade earlier than you would without paying by good you'll think it's the best thing ever. You will also save a huge chunk of interest as well.

If you can find savings that will get you over 5% PA (after tax) then you might be better doing that but that's not easy and there will always be the temptation to spend it on something else.

I only started overpaying later on and wish I'd started early. once you've got used to the money you've got left you just forget about it.

I wouldn't say as much as you can personally but definitely consider a decent overpayment that doesn't mean you can't live a nice life at the sametime.

[BritishLad88]

Also make overpayments as much as you can, when you can. Some mortgages have limits on how much you can overpay in a year so be wary of that to avoid charges.

Is it always a good idea to overpay as much as you can?

I mean i'm way in a financially better position now than when i took out my mortgage 4-5 years ago & as a result have built up a big enough war chest from various contracts. I could use that to overpay my existing mortgage to have more equity in current property & when i do buy my next one' i'l need to maybe again borrow a lot with a small deposit...

Or
... i'm thinking; since i'm in a better financial position meaning i could potentially borrow more now; i can just remortgage my existing mortgage (as i said before i might keep my existing property so i would end up probably remortgage in converting to a letting mortgage) and use my chest as a big deposit for my next home. Meaning for my next property i would have a bigger deposit & would end up borrowing less.
Would this be a better option than above?

[ladymuck]

Don't choose interest only, unless you want to stay with mortgages until you can afford to downsize.
Instead, get an offset tracker. Pay down the loan with any spare funds you have.

Then, in how ever many years time you choose to buy somewhere else, you'll have more equity from the existing property.

+1 for an offset mortgage

Brilliant product to have, especially at the moment when earnings on savings are so rubbish.

Also make overpayments as much as you can, when you can. Some mortgages have limits on how much you can overpay in a year so be wary of that to avoid charges.

[WTFH]

Not too sure right now, it might be a few years away but i'm merely just planning ahead.

Don't choose interest only, unless you want to stay with mortgages until you can afford to downsize.
Instead, get an offset tracker. Pay down the loan with any spare funds you have.

Then, in how ever many years time you choose to buy somewhere else, you'll have more equity from the existing property.

[BritishLad88]

Also, are there any other salient points you're not telling us, such as if you're if you're wanting to buy an Audi Q4 on lease...

Haha, i was hoping to omit certain info which i felt would be pointless for the topic i was asking about..

Are you looking to:
a) remortgage and keep existing house
b) get a new mortgage on an additional house
c) sell existing house and buy new one

If the answer is c, then I'd hold off on switching mortgage deals if you are hoping to sell soon after that. Many deals have tock-in periods and fees, which means the saving of a few quid a month for a couple of months is offset by the cost of getting out or changing.

Not too sure right now, it might be a few years away but i'm merely just planning ahead. I might buy a new one and keep my existing one & convert my existing mortgage to be a buy-let one. It might get complicated... hence why i left this info out deliberately in my OQ. But let's see.

[WTFH]

I'm planning to look to remortgage when my existing mortgage deal expires in the next 2 years and will be looking to purchase a new property as a result so would be making mortgage applications.

Are you looking to:
a) remortgage and keep existing house
b) get a new mortgage on an additional house
c) sell existing house and buy new one

If the answer is c, then I'd hold off on switching mortgage deals if you are hoping to sell soon after that. Many deals have tock-in periods and fees, which means the saving of a few quid a month for a couple of months is offset by the cost of getting out or changing.

Also, are there any other salient points you're not telling us, such as if you're if you're wanting to buy an Audi Q4 on lease...

[ladymuck]

The search has always been crap on this forum. Your best bet is to use the Google search method

site:forums.contractoruk.com keyword1 keyword2

[BritishLad88]

Been asked a ton of times. Here are all the threads related to mortgages and inside IR35

https://www.google.com/search?q=insi...hrome&ie=UTF-8

Thanks for the old thread. That's very useful indeed.

Yeah i did spent ages searching on this forum using the search bar on the top right of this page but didn't return any useful threads at all (certainly not that thread you just posted). Maybe the search feature of this forum could do with an upgrade.
Plus i thought i gave it another shot at asking this topic again since things might have changed since (I know mortgages processes/rules have certainly changed a lot over the last few years because of the pandemic).

[BritishLad88]

I don't see why it should. You're an employee of either the agency (if they're running payroll) or an umbrella. You'll have pay slips and and P60 showing your earnings and that's what the affordability checks will be on.

That's a fair point. I guess if you have payslips then it doesn't matter if you're a full-time employee of a company or on an Inside IR35 contract as at the end of the day you are viewed as an employee i suppose. So it doesn't matter on your employment contract type.

[northernladuk]

Been asked a ton of times. Here are all the threads related to mortgages and inside IR35

https://www.google.com/search?q=insi...hrome&ie=UTF-8

[ladymuck]

I don't see why it should. You're an employee of either the agency (if they're running payroll) or an umbrella. You'll have pay slips and and P60 showing your earnings and that's what the affordability checks will be on.