How new mortgage application rules affect contractors

[Power Mortgages Ltd]

That's a bit worrying - in the last year I have only been in 2 gigs for a total 6 months with 3 month gaps in between, has anyone actually had a large gap as a reason to make it difficult to get a contractor mortgage?

It would make it difficult, yes but all depends upon how you are proving your income. If going down the conventional route of proving your income through your Limited Company accounts it wont matter how many gaps you have had and how long they are. If you can show salary and dividends (or net profit with certain lenders) over a course of 2-3 years accounts are sufficient to support the size mortgage you require then they wont be concerned.

This isn't an Mortgage Market Review (MMR) thing either, this has always been the case. It more so applies to those who may have to go down the 'contractor' route of proving their income by using the contract rate. The reason being (as it always has been) if the lenders are going to annualise your income over a 5 day week and 46 or 48 week year they want to see that you generally do work that kind of amount. Also a lot of lenders have an outdated stereotypical view of contractors that a lot of you find a role for 3 months then when the role comes to an end you then spend the next few months trying to find a new contract before repeating the process over again when in fact a lot of the time, contracts are renewed or new contracts are found which start when the previous one ends showing a consistent, continuous income.

It will also depend upon the overall case, if you are borrowing a low 'loan to value' (amount you wish to borrow in relation to the value of the property) and there is plenty of affordability there then lenders are more likely to overlook gaps in the contracting history. I have had many mortgages agreed where there have been gaps in the contracting history of over 4-6 weeks.

[TheCyclingProgrammer]

If by "contractor mortgage", you mean one where you're assessed based on your current contract and day rate, then I think most contractor-friendly lenders would already expect you to have been consistently working and want to see your current/previous contract history anyway. I know the lender I have my MIP with (Virgin Money) do.

If you're trying to get a mortgage on a self-employed/small business owner basis (using previous years self-assessments or accounts, based on salary + dividends or net profit + salary) then the new rules shouldn't affect you any more than anybody else. If you're more of a freelancer/consultant and do a lot of shorter to medium term project/adhoc work with gaps in between, then as long as you're turning a decent profit, applying on this basis is probably the best route (it was for me).

As always, there are lots of different things that affect a mortgage application as a contractor or small business owner (whether self-employed or company director) so the usual advice of using a contractor-specialist mortgage advisor/broker should apply. They'll be able to advise what the best route is for you and which lenders are likely to accept your application.

In short: if you're business is doing well and/or you have a secure long term contract you should be OK.

[MPwannadecentincome]

Interesting view and tips given...

How new mortgage application rules - Mortgage Market Review (MMR) - affect contractors :: Contractor UK

Top Tip: Avoid lengthy gaps between contracts if you intend to apply for a mortgage soon afterwards. Even contractor-friendly lenders are increasingly wary of those with more than 4-6 weeks out of work each year.

That's a bit worrying - in the last year I have only been in 2 gigs for a total 6 months with 3 month gaps in between, has anyone actually had a large gap as a reason to make it difficult to get a contractor mortgage?