Reply to: low salary and mortgage

[Lockhouse]

I've never had any problems mortgaging through the Halifax. BUT you do need to go to a branch that is switched on about contracting if you want to make things easier on yourself. I went to Canary Wharf, and as soon as I said I was a contractor they said "Would Sir like a cheque or cash?". Well not exactly, but pretty much...

[PrinceNamor]

Got my business account with Nat West and they calculated how much they could lend me based on Company Accounts.

[poopscoop]

I have approached brokers in the past both on my belhalf and my family, but they've never beaten the rates that you can get on the portals.

Occasionally on the portals (e.g. moneyfacts or moneyweb..), you do get mortgages that explicitly state that they're only available through IFAs - but usually there's a better one available directly.

Maybe it'll be different in the future..

But brokers also have deals that are not available through portals or the high street.

[conqurer]

Hi,

Thanks everyone for very useful tips.

Regards.

[swamp]

http://money.independent.co.uk/prope...cle1925164.ece

Mortgage lenders are realising that workers on short contracts are not always high-risk
By Stephen Pritchard
Published: 25 October 2006

As much as half the UK workforce could work for themselves by 2011, according to research commissioned by Vodafone. Already one in eight Britons run their own businesses, and up to a third of the population are thinking about opting for self-employment.

An equally large group of people is working on either short- or fixed-term contracts, as employers and employees look for more flexible ways of working, without actually setting out to run a business.

Contractors have been somewhat overlooked by mortgage lenders. As they are neither employees nor self-employed, they might not have the evidence of salary and job status to get a normal mortgage, but nor will they have the accounts and paperwork of a self-employed person.

According to Cath Hearnden, of MyMortgageDirect, contractors account for around 15 per cent of all loan applications; 15-20 per cent come from the self-employed and the remainder from salaried workers. And the percentage of contract workers is rising.

Hearnden points out that the picture is complicated by the growing number of homebuyers who have full-time jobs but no permanent contract. As well as "serial" contractors in industries such as IT, who move from client to client, more and more people are being employed on fixed-term contracts in sectors as varied as local government, financial services and education.

"We are seeing more blue-collar workers on 12-month contracts, working for organisations such as councils," she says.

How does this affect my mortgage?

Although lenders are becoming more flexible in the way they treat homebuyers on contracts, the options open to a contract worker might be more limited than those for either an employee or the self employed.

An IT professional or other specialist who has worked on short-term contracts might find it easier to arrange a mortgage than a public sector worker with a job that is for a fixed term, especially if it is the first time the homebuyer has held a contract position.

"Most lenders will want to see a contract has been renewed at least once or even twice," Hearnden explains. "If you are looking for a low loan-to-value, it might not be a problem, but if you want to borrow a higher percentage of the price it can be difficult. It is also a problem if your contract is not renewable."

The length of the contract will also be a factor, as will any track record of employment in the field. Someone moving from permanent employment to contracting may be able to convince a lender to give them a loan on their standard, employed terms. But a career move into a different sector will be trickier.

Another factor is length of contract. According to David Hollingworth of London & Country, a contract with two years or more to run will satisfy most lenders. Shorter contracts, or those with a year or less left to run, may well mean an application is refused. "If you are coming to the end of the contract and there is no sign of it being renewed, that is a problem," he says.

What are the options for contractors?

The first step is to check the terms of the contract, and then talk through the options with a mortgage broker. As terms and lenders' policies differ widely, this is one area where good advice is essential. Some companies, such as Abbey and Halifax, have a reputation for being sympathetic to contract workers in IT and other professional services.

Homebuyers who do not have a track record of working as an independent contractor, or are on a fixed-term employment contract, may have to look beyond a regular mortgage. According to Cathy Hearnden a self-certification mortgage is an option, albeit at a cost.

"If someone has a history of stable employment and income, but has worked on several contracts or moved between jobs a lot, self-certification can suit. We can look at other proofs of income, such as bank statements," she says.

But self-certification should never be a first port of call, she cautions. Even the best deals will be 0.5 per cent costlier than a regular mortgage, and arrangement fees can be higher too.

[AZZIK]

I'm just sorting out my morgage went therough the mortgage broker at the estate agency and he found a good deal of 5.29% fixed rate and no arrangement fee with Halifax for 28months. They are quite flexible with contractors now a days as they understand the market. They looked at my total net from salary and dividends and took the contract gross amount and ended up offerring 3 and half times contract gross amount. Worth going to someone who knows what they talking about the mortgage broker was part of a company called OpenWorks.

[Xenophon]

i rec'd this from the Halifax yesterday which might be of interest to you.

"For all IT contractors whether employed, self employed or utilising an umbrella company, we will now accept the gross value of the contract as the income figure to be used within the affordability assessment."

Interesting. Halifax can do better than that (or did at least do so for me very recently) and annualise (minus a bit I think) the daily rate.

[glashIFA@Paramount]

Hi,

There is an obvious advantage of paying a low salary and taking the rest as dividends. But does this not affect your ability to get mortgage from a bank as they can only offer you 4-5 times of your salary. Do dividends also add up to your basic salary for the purpose of getting a mortgage?

Regards.

i rec'd this from the Halifax yesterday which might be of interest to you.

"For all IT contractors whether employed, self employed or utilising an umbrella company, we will now accept the gross value of the contract as the income figure to be used within the affordability assessment."

[Lewis]

First Direct and HSBC seem to know all about contracting and will give mortgage based on company accounts.

[proster]

I have approached brokers in the past both on my belhalf and my family, but they've never beaten the rates that you can get on the portals.

Occasionally on the portals (e.g. moneyfacts or moneyweb..), you do get mortgages that explicitly state that they're only available through IFAs - but usually there's a better one available directly.

Maybe it'll be different in the future..

[ASB]

In order to find the best deal, I had done a search through the various portals and found the best offset mortgage rather than go through a broker.

Out of interest did you actually approach any brokers or are you just assuming that the best you could do was the best found on the portals. ?

I only ask because when I bought a house a few years ago I went through a similar exercise, the estate agent was adamant I talked to their IFA so eventually I did.

They offered me (from the same lender) a deal with the same basic conditions re tie-in, 0.4% less rate and 600 quid cashback.

[proster]

Not sure if this is useful in your case but a couple of months ago I was approaching the end of my fixed term mortgage whilst I was changing jobs from being a permie to contractor under a ltd company.

Although the application was originally made whilst being a permie, I had to inform them of the change.

I sent them a copy of my ltd company details, the contract with the EB and a two page explanation of all relevant details, including calculating my gross annual salary based on 44 weeks annual equivalent.

The building society approved the mortgage.

In order to find the best deal, I had done a search through the various portals and found the best offset mortgage rather than go through a broker.

HTH

[weboo]

You are not on your own, many contractors will have the same problem. Self certify is one way to go, but rates/charges could be higher. Talk to an IFA for some advice though, they are the specialists and know what to do. Some lenders will give you the money no problem, some even have Contractor with own Ltd in their drop downs, but an IFA will get you the best deal

Changes in November 05(Mortgage Day) mean that everything should now be in a KFI(Key Facts) so that you see all charges....that way, you make sure you are not being ripped off anymore by a middle man

[ASB]

Some high street lenders will also include dividends in various ways. Alliance and Leicester do [or did] for example. Normally if you own/control your company they will be prepared to accept them as part of income.

Though as DaveB said, brokers can often get better deals. [Even though they are usually paid an acquisition fee].

[tim123]

2) Use a specialist broker like Contractor Money . Just re-mortgaged through them and got a much better deal than I would have done through a standard broker, which I also tried.

I found that standard brokers were complete useless at understand the way contractors pay them self.

Getting a mortgage direct from the BS was much easier.

tim