Reply to: Are Halifax mortgages contractor friendly?

[Power Mortgages Ltd]

Halifax are a contractor friendly lender, yes.

The definition of 'contractor friendly' really relates to how they will assess your income as a contractor.

There are the following two ways:

The conventional method

If you are a Limited Company Director and own over 25% of the shares of the Limited Company then most lenders will define your income as the salary and dividends you have declared through the Limited Company, typically over a minimum of 2 years, or with some lenders, 3 years. It does not matter if you are a contractor or not in this method, they are assessing you as a Limited Company Director.

Incidentally, Halifax will work from 1 year of accounts on this basis nowadays without the need for the 2 or 3 years accounts but are one of the few lenders who will, almost all others need 2 or 3 years.

The way this is calculated is normally on the basis that they will average the income over the 2 (or 3) years accounts or use the most recent year's figures, whichever is lower. Therefore if your salary and dividends have increased year on year and your most recent year is higher than the previous year, they will use the average. However if you have declared a lower income this year (you may have accepted a lower contract rate role or taken some time out for example) then they will use the latest year's figures only, regarless of what you may have taken in previous years.

The contractor method

If you do not have 2-3 years accounts (or 1 year in the case of Halifax) or you have kept your salary and dividends low for obvious reasons which do not support the amount you need to borrow (see below for explanation on how much you can borrow) then you can look to use your contract as your proof of income. There are a few lenders who will allow you to do this but the choice is a bit more restricted than taking the conventional approach as lenders like HSBC, Santander, Natwest and Nationwide amongst others will all insist on using the conventional approach to assess your income.

Halifax simply state that so long as your day rate is £312.50 or more then they will assist (you no longer have to be an IT contractor only, this change came about in May and Halfax will look at contractors in all industries now) using your contract as your proof of income, that is if you work a full time contract (5 days a week). If you work an adhoc contract of say, 2 or 3 days a week and not a 'full time' contract then the contract rate has to be £500 per day or more.

They will take your day rate, say £400 and annualise this over a 48 week year (£400 x 5 days a week x 48 weeks per annum) to give you an income of £96,000 which would be a figure similar to the turnover of your Limited Company before any administrative costs and corporation tax are deducted. This will always be more than the figure of your salary and dividends combined, especially if your Accountant has been efficient with the accounts (for example retaining profit within the Limited Company).

Using both methods, the amount you can borrow varies from lender to lender and will not only depend upon the lenders typical 'income multiple' (which Halifax is up to 5 x income) but also how much unsecured debt you have (credit cards you keep balances on each month and do not clear, hire purchase agreements and personal loans) as well as number of financial dependants you have (children and non earning partners).

Halifax can even assist for a day 1 contractor / day 1 Limited Company Director based upon the contract rate so long as you have been working (employed or self employed) over the last 12 months in the same line of work so you do not need a contracting history in this instance.

Normally at application stage you need to have around 4-6 weeks left on the contract term otherwise an Underwriter may ask for proof the contract will extend or a new contract from another end client.

Hopefully that provides you with an explanation of how it works?

Please feel free to inbox me if you have any questions, I would be happy to assist and can provide my contact details too if you want a chat? Power Mortgages Ltd (sorry about the user name saying Ldt, I had fat finger syndrome when entering my username!) is a whole of market mortgage brokers who specialise in providing mortgages and related protection products for contractors.

I have personally helped a few of the forum members already (which I am aware of) and thank any of them who have recommended me.

Ben Rogers

[Sausage Surprise]

Understood, and I think it's something I will find out.

Also rather than approaching Halifax directly, I think I'll go through ContractorMortgagesUK, my accountants recommend them.

In the process of doing this myself and have AIP from Halifax too.

[JennaB]

lenders other than halifax?

Our mortgage broker called them a couple of months ago and we were told we were ok with one years accounts showing salary and divs. They wanted CV as well to show I had been doing same thing for a while.
We pulled out in the end so I don't know whether it would have gone through ok. I'd be interested to know of other lenders who are ok with contractors for the next time.

[titan]

I have just one year of accounts and I recently applied for a mortgage using one of the specialist contractor mortgage brokers. I went for a 75% LTV 25 year mortgage and have now obtained an offer from Halifax. It is a 2.74% fixed rate for two years and then variable (3.99% currently). There is a £999 product fee and a £265 mortgage amount fee that can be added to the borrowed amount. And there is a £565 valuation fee to be paid upfront to Halifax.

I had contacted two contractor mortgage brokers to see what was on offer. Both recommended the above deal but the one I ended up using charged no fees from me while the other wanted £695 for pretty much the same service. So no surprises as to who I went with. The whole process was surprisingly straightforward and quick. I was only asked for a copy of my ongoing contract and was told that I could borrow upto five times the annualized value of my contract (effectively 5 * 230 * daily rate). I actually ended up needing to borrow just over half the amount I was eligible to borrow as per this criteria. I would whole heartedly recommend this channel of mortgage application to any contractor wishing to take out a mortgage. At the very least, it certainly does no harm to at least see what deal you get from them. As mentioned, I was not charged any fee as they get paid commission by the lender.

[redgiant]

I had no problem going direct with Halifax. As others have said they seem to be familiar with how contractors finances operate and were happy to give me a 2yr fixed mortgage when it came to re-mortgaging my London pad.

[insomniac]

Understood, and I think it's something I will find out.

Also rather than approaching Halifax directly, I think I'll go through ContractorMortgagesUK, my accountants recommend them.

[SueEllen]

Just to give you my personal experience with Halifax. I called them up directly and they asked me what sort of contracting work I did, and specifically whether I was an "IT contractor".

I told them that I provide consulting services for numerical optimization problems, so I wouldn't classify myself as an "IT contractor".

Even though you don't class yourself as an IT contractor would others like your clients' HR claim you are?

The reason I'm asking this question is that it's made very clear from getting everything from car insurance to credit cards you need to classify yourself in what others see you as not what you think you should be classified at.

As long as you aren't clearly misrepresenting yourself for example claiming you are a property developer when you are clearly a landlord, then you will not have any problems.

[northernladuk]

Just to give you my personal experience with Halifax. I called them up directly and they asked me what sort of contracting work I did, and specifically whether I was an "IT contractor".

I told them that I provide consulting services for numerical optimization problems, so I wouldn't classify myself as an "IT contractor".

They told me that in that case, they won't be able to offer me an offer a mortgage, even though I wanted to borrow about 1.5x my annual earnings and am looking at about 50% LTV.

So... lesson learned.

Did you ring them back and tell them you are a director of a small company without getting in to the details. They must give mortgages to directors. Maybe a case of being a bit too honest?

[insomniac]

Just to give you my personal experience with Halifax. I called them up directly and they asked me what sort of contracting work I did, and specifically whether I was an "IT contractor".

I told them that I provide consulting services for numerical optimization problems, so I wouldn't classify myself as an "IT contractor".

They told me that in that case, they won't be able to offer me an offer a mortgage, even though I wanted to borrow about 1.5x my annual earnings and am looking at about 50% LTV.

So... lesson learned.

[sirja]

The rates and deals change all the time and vary according to your personal risk profile. I would suggest contacting an advisor?

I am not an MA.

I am using ContractorMortgages was just checking to compare. Thanks anyway

[Scruff]

Iam in the process of getting a mortgage and have an AIP from the Halifax. Is the 85% LTV@3.69% fixed or variable?

The rates and deals change all the time and vary according to your personal risk profile. I would suggest contacting an advisor?

I am not an MA.

[sirja]

Here we go again...

Halifax will give you up to 90% LTV (5.39%), 85% LTV (3.69%).

You need to send them your CV and your signed contract (needs at least 6 weeks remaining on it). I never had any company accounts, since I had only returned to Contracting after 3 years in Permie doldrums.

I received an AIP within a week, and the offer on the same day as the valuation.

You need a flawless credit history...and a decent Mortgage Advisor (ahem, my wife )

Iam in the process of getting a mortgage and have an AIP from the Halifax. Is the 85% LTV@3.69% fixed or variable?

[d000hg]

Our IFA has an arrangement with Halifax; they will give a formal mortgage offer without doing a credit check which means they typically use them first so you can show an offer of mortgage to the estate agent, and Halifax get business when people can't easily get a better product.

They were very happy to offer some silly amount of money to me based on SA302s alone.

But I think having an [I]FA does make a difference, their trust in you carries some extra weight.

[SueEllen]

Are you sure about this? Last time I spoke to Halifax a year ago about a mortgage I advised I ran a small business and the operator said that was fine they are happy to contact my accountant direct and I also didn't have 2 years to which they said they will take a mix of filed accounts and perm. The process was pretty slick and with no question. I thought they had done a pretty good job of understanding small businesses. Do they understand the concept of lending on daily rate rather than artificially reduced income is a different question.

It always depends on who you speak to so as a rule of thumb I presume they don't understand, so when I find someone who does I'm very happy.

Unfortunately the level of customer service in the UK is so bad small things make me happy.

Anyway back on the thread the only lender I've known contractors have difficulty with is Nationwide.

[northernladuk]

I would throw RBS in to the fray as seems we are talking about lenders. I have been added to my partners mortgage last year and had a new one from them in the last few months and they didn't raise an eyebrow to my contractor status. Remember they may not know how a contractor works but they do know how small businesses work so approach it that way instead. Might work a bit better rather than confusing them.
Admittedly I had 2 years audited accounts though.