Reply to: Mortgages - Do I really need a broker?

[TheCyclingProgrammer]

FWIW, my broker has recommended to me a deal with the Coventry Building Society - we aren't going to be looking for a few more months yet and that might not be the best deal available by then but they were happy to calculate affordability based on my last years net profit + my director's salary (and my partner's if she'd been on the payroll for the whole year but she hadn't) with a very generous multiple (4.5x I think).

They do still require at least 2 years worth of accounts to support the application however. The deal was about 2.5% fixed for 2 years with a 20% deposit. The net result was that they offered us more than 50% more than we actually needed, giving us a bit of flexibility. No AIP as yet though. I'm not sure if I can advertise who my broker is but I'm happy to pass on the details to anybody if they want to PM me.

One caveat: I tend to take on project and consultancy work that is generally short term rather than taking on consecutive longer term contracts. More like a "freelancer" than a "contractor", if you like. So finding a mortgage based on my contract day rate and/or current contract wasn't the best option for me. It might be different for you.

[Jeebo72]

Which providers will consider 2yrs accounts instead of 3?

I want HSBCs tracker product but they are set on 3, which my first year permie/contractor crossover wouldn't cover me for..

I'm with HSBC and they do want 3 years accounts. But really easy to sort out, and good rates if you got those 3 years...

[Power Mortgages Ltd]

...assuming a 5 day week.

Far easier to think [DAY RATE] x [DAYS CONTRACTED IN A WEEK] x 48.

I was illustrating the maximum number of days they would use to show how far away it was from 365 days

Which providers will consider 2yrs accounts instead of 3?

I want HSBCs tracker product but they are set on 3, which my first year permie/contractor crossover wouldn't cover me for..

A large number of lenders only need 2 (more than those who need 3 years), it is just the notoriously difficult lenders like HSBC who stick to 3 years accounts but I have known them to offer contractors' mortgages with less than 3 years finalised accounts. I believe this may have been down to the fact they were Premier Banking clients though and possibly business bank account clients too.

[oversteer]

Which providers will consider 2yrs accounts instead of 3?

I want HSBCs tracker product but they are set on 3, which my first year permie/contractor crossover wouldn't cover me for..

[Mark McBurney@CMME]

They do not use 365 * day rate, they use 240 * day rate

...assuming a 5 day week.

Far easier to think [DAY RATE] x [DAYS CONTRACTED IN A WEEK] x 48.

I can't imagine for a second that they'd ever actually use 365 x day rate surely? I can see how lower-risk cases might be put through on effectively fast-track applications, but if it's tight there's no way they'd go with 365 x day rate.

[Power Mortgages Ltd]

I have heard from many others that HBOS (internally) use 365 * day rate, and even after contractors explain, that gives a figure that is too high. They stick with 365 since that is the HBOS process!

They do not use 365 * day rate, they use 240 * day rate

[edison]

I have heard from many others that HBOS (internally) use 365 * day rate, and even after contractors explain, that gives a figure that is too high. They stick with 365 since that is the HBOS process!

That's the kind of underwriting skills that got them into such a massive problem in the first place during the financial crisis with property and particularly commercial loans!

[Mulder]

Yep ... this wasn't from a broker but from one of their inhouse advisors so it's probably not tulip.

I have heard from many others that HBOS (internally) use 365 * day rate, and even after contractors explain, that gives a figure that is too high. They stick with 365 since that is the HBOS process!

[Power Mortgages Ltd]

Hmmmm will they do this for BTL mortgages too? Could be a good way to get investing....

They do offer buy to let mortgages but only direct (not through mortgage intermediaries) which means you are at the mercy of finding a Halifax employee who may or may not know how contractors operate and how that ties in with their own lending criteria. Their rates are very poor too. Through the mortgage intermediary channel all Lloyds Banking Group buy to let mortgages are offered through Birmingham Midshires (also known as BM Solutions). They need you to have been self employed for 2 years but do not need proof of income for buy to let mortgages, instead looking at the rental income the property will generate. So long as that is 125% of the mortgage payments calculated at a rate of 5% on an interest only basis then it passes affordability.

There are other lenders who offer contract rate based lending for buy to let mortgages though and have very good rates including a lender who has an arrangement fee free option up to 75% of the property value which can save a lot of money based upon the fact that in the buy to let mortgage market, arrangement fees tend to be higher than in the residential mortgage market. It's quite common for lenders providing buy to let mortgages to charge a fee based upon a certain percentage of what you are borrowing so the bigger the loan, the higher the fees the lender charges.

Quite often it pays to go for a slightly higher rate with a more friendly arrangement fee as you'll end up better off over the duration of the rate.

For example (using random figures), if you are considering a 2 year fixed rate of 3% with a £5,000 arrangement fee and monthly interest only payments of £1,000 then if there is a 2 year fixed rate of 3.4% with no arrangement fee and payments are £1,100 per month you will save £2,400 over the 2 years but it is costing you a £5,000 arrangement fee to save that £2,400 so you'd be better off going for the higher rate with no fee. That principle applies more often than you'd think when looking at buy to let mortgages so be careful when considering which mortgage to go for. Don't simply be led by the headline rate.

[ChimpMaster]

Met an advisor from the Halifax about my current mortgage a couple of weeks ago and he said IT Contractors are treated differently than regular self employed and can offer daily rate x 365 x 5 (way more than you'll probably need!) All they needed was last years accounts. Tempted to go with them again when I move.

If you are in London i'm happy to supply the details of the advisor who spoke to me there.

Hmmmm will they do this for BTL mortgages too? Could be a good way to get investing....

[Power Mortgages Ltd]

I was always dubious of the fact alot of brokers make there money from the lender and not a fee you pay therefore they would probably be more inclined to use a lender who give them the best commission.

Hi ELBBUBKUNPS,

Agree with the gist of what you are saying but I have to pick you up on the above point as this simply is not true. We are heavily regulated which makes this type of practice not only unethical but against regulation too. You may have found this type of behaviour around 15-20 years ago from some cowboy brokers but since the financial services market has been heavily regulated this type of thing is the quickest way to get a licence revoked and your ability to provide mortgage advice taken away from you. We have to obtain qualifications to become mortgage/financial advisors so it is a career. You'd be throwing away a career, not just a job if you tried to do this kind of thing.

Most lenders tend to pay very similar rates of commission anyway only varying by small amounts.

Besides, as a service which is designed to provide the best mortgage for your circumstances, if an Advisor was led by the commission the lender pays, rather than the best rate for the your circumstances then the Advisor would very rarely get business anyway if better rates elsewhere (which you are eligible for) could be obtained.

[ELBBUBKUNPS]

Agreed its worth using a broker if you think you may struggle to get a mortgage due to circumstances as at least they tend to know the lending criteria.

Other than that I wouldn't use a broker unless you can't be bothered to do the leg work of checking rates out, which you will probably do anyway when you use a broker just to make sure the deal is good. I was always dubious of the fact alot of brokers make there money from the lender and not a fee you pay therefore they would probably be more inclined to use a lender who give them the best commission. Also dealing with a broker means there is another party involved and you can't tend to talk to the lender direct.

I did have a bad experience with a broker the first and only time I used one and that was I sent the broker recorded delievery all my orginal paperwork etc, proof of ID etc and the broker lost it all of it ! Not saying all brokers are the same but I find they only offer a benefit if you in a sistuation were you are not sure who will lend or you can't be bothered to get google up and search 'best rates'.

[Power Mortgages Ltd]

Met an advisor from the Halifax about my current mortgage a couple of weeks ago and he said IT Contractors are treated differently than regular self employed and can offer daily rate x 365 x 5 (way more than you'll probably need!) All they needed was last years accounts. Tempted to go with them again when I move.

If you are in London i'm happy to supply the details of the advisor who spoke to me there.

This is correct, they do use your annualised contract rate as proof of your income but the above goes to show how unreliable approaching a branch advisor is as most Halifax advisors do not know their own criteria concerning contractors that well.

Firstly they do not annualise your contract rate over 365 days. They use your day rate x 5 days a week x 48 weeks per annum and will only do this if your contract is a 'full time' contract, i.e. 5 days a week. If your contract is only 2-3 days a week it will be pro rata.

On top of that, if they are using your contract to prove your income and using an annualised figure they DO NOT need your latest Limited Company accounts. These would contradict the income details and jeopardise your application. Halifax when assessing Limited Company accounts use only the salary and dividends you have declared as the definition of your income which in most instances will be a lot less than the annualised contract rate which will be a figure fairly similar to the turnover of the Limited Company.

I have said before, if you feel you can get a mortgage yourself then you do not need a broker but a number of contractors do not have 2-3 years of Limited Company trading accounts most lenders need to prove your income. If you contract through your own Limited Company then most lenders don't look at you as a contractor, they look at you as a self employed Limited Company Director for the purposes of a mortgage application and will want to see 2-3 years finalised year end accounts. Most lenders work from salary and dividends so any profit you have retained in the company is not considered. There are one or two who will use retained profit (or simply work from the net profit of the company) but the majority do not.

This is where using a broker can pay dividends because if you simply look at an online comparison site and your details are not straight forward then you could find that you are approaching a number of lenders who are unable to assist based upon your circumstances. This can be costly in terms of the time it will take you to do this and also potentially mean you face submitting applications which will get declined which wastes your time and also leaves footprints on your credit file.

A good broker will know reasonably quickly which lenders may be able to assist and which would simply decline any application straight away, saving you valuable time and potentially money too. A lot of lenders nowadays charge 'booking' or 'administration' fees upfront upon submission of an application which you would lose if your application was turned down.

The rates brokers have access to are largely the same as the rates you get directly from lenders with a few differences. It has been mentioned so I thought I would elaborate on this to clear up any confusion. Some lenders 'dual price' which means you will possibly get a different rate if you go to that lender directly via a branch or their call centre if they have one. This can work both ways. Sometimes it is cheaper going direct, other times us brokers have access to rates you do not get in the branch/directly.

The one thing you can generally be sure using a good broker though is that you will not have all the hassle searching through a number of lenders, finding out what they need and if you meet their criteria. If you had to take a day off work to go to branches for meetings and complete research then how much has that cost you in loss of earnings? If your day rate is £500 then a 10-15 minute call to a broker on your break could save all that leg work.

Going back to Halifax for a second, I have lost count of the number of contractors I have spoken with who have gone direct to them and the person they spoke to just simply didn't understand their circumstances and either told them they could not help or submitted an application in the wrong way and it didn't end up going through as the maximum lending amount was too low or the Underwriter didn't deem it good business. These are all contractors I would have been able to help knowing how to submit the application in the right way in the first place and once an application has been submitted to Halifax, if it falls through you do not have the ability to submit another application with them through another channel because their fraud department will cross reference the fact you have already submitted an application and decline the new one thinking you are trying to sneak through another application.

If you have at least 2 years finalised accounts, the mortgage you need is around no more than 4.5 times your salary and dividend figures (as an average over the last 2 years), you have the time to do it yourself and you are confident enough to source the mortgage and apply for it on your own then you do not need a broker but not everyone fits the above so it is really down to personal circumstances and preferences. Every client I deal with is different so do what you feel is best, not necessarily what others recommend who may have entirely different circumstances to your own.

I appreciate the above is a bit of a essay but hopefully it provides you with some insight and can help?

Ben

[krishna]

Yep ... this wasn't from a broker but from one of their inhouse advisors so it's probably not tulip.

Hi, can you provide me the details of the advisor.
Thanks.

[Elegg]

Met an advisor from the Halifax about my current mortgage a couple of weeks ago and he said IT Contractors are treated differently than regular self employed and can offer daily rate x 365 x 5 (way more than you'll probably need!) All they needed was last years accounts. Tempted to go with them again when I move.

If you are in London i'm happy to supply the details of the advisor who spoke to me there.

Hi Regiant, can you please supply me the adviser details??