Halifax Agreement in principle - how to get offer based on daily rate? (working link)

[TheMortgageSquad]

Good find that. What I can't see though is what their limitations are. Cant remember which banks stipulated what but some wouldnt entertain you if there were less than 6 months left on the contract and another didn't allow any breaks in the previous two years or something. Wonder what Halifax's is.

Typically Halifax wouldn't want to see any gaps of longer than circa 6 weeks between contracts in the last 12 months. However, Halifax are quite hit and miss, dependent upon the Underwriter who deals with the application. I have seen applications go through with gaps of more than 6 weeks in the last 12 months. As they only ask for a copy of the current contract and last 3 months bank statements (business bank statements if outside IR35 or personal bank statements and payslips if inside IR35), if a contractor had a gap of longer than 6 week over 3 months ago, they wouldn't actually know with the documents provided anyway.

Other lenders (Clydesdale, Nationwide, Natwest, Barclays etc), typically require the last 12 months of contracts so of course if there was a gap of longer than 6-8 weeks which is generally the maximum gap most contractor friendly lenders will allow, they would obviously see this through the lack of contracts covering that period.

[northernladuk]

Indeed!

This may be helpful for anyone seeing this thread and having the same issue in future - https://www.halifax-intermediaries.co.uk/criteria.html
Go to the 'contractors' section, find this wording re: IT contractors;

Treat as Employed if:

• Tax is paid by the company they work for (or they are employed via an umbrella company who deduct tax) OR
• Contractors who earn more than £500 per day or £75k per annum, OR are an IT contractor on any income, can be treated as employed irrespective if the customer pays their own tax, or classes themselves as self-employed. (The only exception to this is where a customer has more than one contract or they have set up a limited company and employs other contractors, in which case they should be treated as self-employed).

And

• Income to be used is the lower of the gross value of the contract or income calculated from payslip(s)/bank statement.
• Gross value of contract is calculated as daily rate on the contract x 5 days per week x 46 weeks per year (or hourly rate x 7 hours per day x 5 days per week x 46 weeks per year). Unless the contract states the actual hours/days worked are lower in which case use these figures.

Good find that. What I can't see though is what their limitations are. Cant remember which banks stipulated what but some wouldnt entertain you if there were less than 6 months left on the contract and another didn't allow any breaks in the previous two years or something. Wonder what Halifax's is.

[Paracelsus]

Indeed!

This may be helpful for anyone seeing this thread and having the same issue in future - https://www.halifax-intermediaries.co.uk/criteria.html
Go to the 'contractors' section, find this wording re: IT contractors;

Treat as Employed if:

• Tax is paid by the company they work for (or they are employed via an umbrella company who deduct tax) OR
• Contractors who earn more than £500 per day or £75k per annum, OR are an IT contractor on any income, can be treated as employed irrespective if the customer pays their own tax, or classes themselves as self-employed. (The only exception to this is where a customer has more than one contract or they have set up a limited company and employs other contractors, in which case they should be treated as self-employed).

And

• Income to be used is the lower of the gross value of the contract or income calculated from payslip(s)/bank statement.
• Gross value of contract is calculated as daily rate on the contract x 5 days per week x 46 weeks per year (or hourly rate x 7 hours per day x 5 days per week x 46 weeks per year). Unless the contract states the actual hours/days worked are lower in which case use these figures.

[TheMortgageSquad]

No, I am inputting the SATR earnings and being surprised there is no other option for rate based estimation (as many articles and forum replies imply)

Anyway got a follow up call from Halifax confirming the generic AIP form on website is not suitable for this scenario and to get the proper contractor's AIP an appointment with advisor is required.

Also Clydesdale had more realistic questionnaire including Ltd income rate etc which resulted in realistic figure straight away, so this is sorted for now.

You shouldn't need to enter the SATR figure in at all. Just key yourself as employed and 'fixed/short term contract' then enter your annualised day rate based upon day rate x 5 days a week x 46 weeks a year in the employed earnings box. Surprised Halifax say you need an appointment with a specialist contractor advisor... Halifax don't have those! They have advisors who know what a contractor is and those who don't. To this day it still shocks me how many Halifax employees don't understand their own lending criteria and key contractors wrong. Halifax advisors literally have to know and understand one lender's criteria, Halifax. Brokers have to have a good knowledge of all lender's criteria!

The system all Halifax advisors use is the same, it's just the advisor's understanding on how to use that system which makes the difference.

[Lumiere]

So you're inputting the earnings from your SATR and then being surprised that the offer isn't based on rate * 5 * 46? Duh..

No, I am inputting the SATR earnings and being surprised there is no other option for rate based estimation (as many articles and forum replies imply)

Anyway got a follow up call from Halifax confirming the generic AIP form on website is not suitable for this scenario and to get the proper contractor's AIP an appointment with advisor is required.

Also Clydesdale had more realistic questionnaire including Ltd income rate etc which resulted in realistic figure straight away, so this is sorted for now.

[WTFH]

So you're inputting the earnings from your SATR and then being surprised that the offer isn't based on rate * 5 * 46? Duh..

Also using the second shareholder's "income" from the Ltd.
If the second shareholder has a real job, then put their salary on the application, along with your rate.

But in reality, we're a couple of threads in to this discussion, I think professional help is the best advice we could give, unless there's bits of the story that are being left out.

[ladymuck]

So you're inputting the earnings from your SATR and then being surprised that the offer isn't based on rate * 5 * 46? Duh..

[TheMortgageSquad]

This was for 60% LTV repayment .. the offer is less than x2.5 income by self-employed criteria.

That formula is mentioned on many contracting websites e.g. https://www.contractoruk.com/news/00...you_contractor _employee_or_self_employed.html

Unless the contractual hours are specified on a contract, Halifax uses the following calculation to ‘annualise’ contract income:
If on hourly rate, day rate = hourly rate x 7
Day rate x 5 = weekly rate
Annualised rate = weekly rate x 46

But I don't see a way to provide daily rate for such calculation in the AIP form. I am not technically 'self-employed'.

Employed applicants


For all intents and purposes (and be warned, this is where the layman trips up), Halifax treats contractors who match the following criteria the same as ‘employed’ applicants:

• The contractor earns >£500/day or >£75k/year, or is an IT contractor (any income);
  • the lender will treat such contractors as employed irrespective of whether they pay their own tax or class themselves as self-employed;

Either I am missing something or they have changed the criteria/form recently.

Not ready yet to complete endless questionnaires of brokers, just wanted AIP to show agents if asked when making offers.

You key yourself Employed > fixed/short term contract then when it asks for your income, you key it as day rate x 5 days a week x 46 weeks a year, e.g. £500 a day equates to £115,000 per annum.

With a 60% loan to value (or below) you get the best rates from lenders. Borrowing amount only tends to decrease when borrowing 85% loan to value or above. You'd be able to borrow the same amount at 60% or 80% loan to value.

Hope that helps!

[Lumiere]

This was for 60% LTV repayment .. the offer is less than x2.5 income by self-employed criteria.

That formula is mentioned on many contracting websites e.g. https://www.contractoruk.com/news/00...you_contractor _employee_or_self_employed.html

Unless the contractual hours are specified on a contract, Halifax uses the following calculation to ‘annualise’ contract income:
If on hourly rate, day rate = hourly rate x 7
Day rate x 5 = weekly rate
Annualised rate = weekly rate x 46

But I don't see a way to provide daily rate for such calculation in the AIP form. I am not technically 'self-employed'.

Employed applicants


For all intents and purposes (and be warned, this is where the layman trips up), Halifax treats contractors who match the following criteria the same as ‘employed’ applicants:

• The contractor earns >£500/day or >£75k/year, or is an IT contractor (any income);
  • the lender will treat such contractors as employed irrespective of whether they pay their own tax or class themselves as self-employed;

Either I am missing something or they have changed the criteria/form recently.

Not ready yet to complete endless questionnaires of brokers, just wanted AIP to show agents if asked when making offers.

[WTFH]

The question was more about how to get the offer based on rate*5*46 formula which based on the previous forum replies was the way Halifax dealt with contractors. Perhaps that changed now and I should check other contractor friendly banks

This is why companies pay contractors to do things that they are not sufficiently skilled in doing themselves. This is why contractors use professionals to sort out their mortgage for them.
The rate *5*46 is just an example formula, it is not set in stone for everyone. As the Americans would say “YMMV”.

The amount of a mortgage that you can get (even an AIP) will depend on the LTV, as was explained in your previous thread. How much of a deposit you put down will open up more options. If you’re wanting a £245k mortgage on a £250k property, that is going to be less likely than if you are looking for a £245k mortgage on a £450k property. The magic number (I believe) is still 60% LTV. If you can put up a 40% deposit, that will give you the biggest mortgage options.
The lender is looking at two things:
1. What is the likelihood that you can repay them each month.
2. If you can’t repay them, will they be able to get their money back selling the property.

The next thing they look at is are you going for repayment or interest only. Interest only is lower monthly outgoings for you, but higher risk for them and you. Repayment is higher monthly outgoings, but lower risk for you and them.

Your best bet is to read what you are filling out and be honest, that is, if you’re not prepared to pay for a professional.

[Lumiere]

The question was more about how to get the offer based on rate*5*46 formula which based on the previous forum replies was the way Halifax dealt with contractors. Perhaps that changed now and I should check other contractor friendly banks

[northernladuk]

It clearly says if you are an Ltd Director you must select self-employed, then gives these contract options of which none seem to apply to regular IT outside of IR35 type of contracts, I went with Fixed term as the closest option.

But it doesn't say Fixed Term. It says Fixed/Short Term Contract.. and all our contracts are short term contracts so it's exactly what you want. Maybe a case or word blindness as you didn't read the one option which is what you do properly.

[Lumiere]

Trying to get an AIP to show agents if asked (also I assume real mortgage application will have the same options), what do I select below ?

It clearly says if you are an Ltd Director you must select self-employed, then gives these contract options of which none seem to apply to regular IT outside of IR35 type of contracts, I went with Fixed term as the closest option.

Got an offer of £245000 based on 2 shareholders, just below upper tax limit paye+dividends income for each.
When I tried calculator based on rate * 5 * 46 it offered 2-3 times more.