Reply to: Less than 12 months contracting history - mortgage

[Emma Power Mortgages]

I've been lurking around for over a year, decided to create an account now that I have a question.

I have applied for a mortgage via broker with less than 12 months contracting history, and she seems to only have access to one mortgage product with pretty high rate.

Is this right? Don't I have any choice between products just because I am contracting for less than a year?

Hi

How long have you been doing it for? What is your deposit size? Do you have a contract that takes you over a year? The answers to these questions will dictate the amount of lenders you have access too and if your options can be increased. 12 month history is really the magic number to increase your options these days

Barclays/Woolich do not have a contractor criteria anymore so you would need to use accounts to access their self employed criteria and no one will accept less than a years accounts. Your deposit size should dictate the rate available to you and I have found that the lender we use for less than 12 months is average across the market in terms of rate, not the best but middle range.

Like the others have said, speak to a few and see who you trust

Hope this helps

[kaiser78]

Do you know if they accept less than 12 months accounts? Should I go directly to them or via broker?

I used one of the brokers from this website and she says my only option is Halifax as I have been contracting for less than a year.

I'd like to have a choice and ability to compare at least two mortgages before signing up with anyone

I went directly to them and they were very accommodating, although this was 5-6 years ago now...

[northernladuk]

Also, you don't have to wait until your first return to get accounts done. You can ask your accountant any time to prepare them up to the current date and add a nice cover letter. It helps immensely to have an accountant confirm your most recent figures, for anything remotely related to borrowing.

Just check with your accountant first. Some of them may charge you for wanting them early.

[Kraut]

Also, you don't have to wait until your first return to get accounts done. You can ask your accountant any time to prepare them up to the current date and add a nice cover letter. It helps immensely to have an accountant confirm your most recent figures, for anything remotely related to borrowing.

[tractor123]

speak to a couple of contractor brokers already mentioned and you may well be pleasantly surprised

Thanks! Will do

[Mincepie]

speak to a couple of contractor brokers already mentioned and you may well be pleasantly surprised

[tractor123]

The only way to find out is to apply. Go for the agreement in principle and find out what they'll lend you and what deposit you'll need. If you're not happy with that, then go to another broker and see what they say.

Ultimately, you may pay a bit more as you are viewed as higher risk, so the product range you can get won't be as broad. But if paying a bit more means you get the house you want at today's prices, then it may well be worth it.

While house price rises may slow down after Brexit, no one is predicting that they will fall, so buying a house next year will probably be still more expensive than last year. Paying 1% more for a couple of years is probably better than paying 10-20k (for example) more in 2 years.

Thanks, I'll try to get AIP this week.
With house prices going up, I thought it would make sense to buy sooner rather than later, but obviously I am not the most desirable mortgage customer at this point.

[tractor123]

I'd say it so worth doing a little more digging before dropping it. Find out why the rate is what it is and how that compares to other lenders you haven't quite got access to. Is it your LTV rather than anything to do with contracting etc.

Find out exactly what the problem is. If it is your LTV and you come back with the same value after two years you could have a bit of a shock that nothings changed and you've wasted a year etc. Get a plan together to get where you want as soon as possible.

Thanks. To be honest my current deposit is just over 10% which is not much. I am just in process of doing my research online. Will also speak to another broker just to see if he/she will say the same thing.

[FrontEnder]

You also have to bear in mind each lender has their own criteria. Some will want you to be less than 50% through the contract, another won't accept anyone with gaps over a certain length in the last few years etc. Even if the numbers match and you have more than 15% deposit other criteria can come in from left field and trip you up.

Oh yes, I'm not suggesting my experience is what the OP should expect. They also look at your credit report, mine is pretty good, but not perfect, so maybe that swayed them to ask for a higher deposit.

I'm a little surprised by this. I remember when I was searching first time I went to a number of high street lenders and when I mentioned the less thank 1 year they said no problems, they'll just top up the 2 years with the information from perm employment. They seemed pretty clued up with the fact they'd need to speak to my accountant and the like. I just found I was spending an inordinate amount of time searching so went to Freelance Financials that did all that for me.

I'm a little surprised by the comment regarding traditional mortgage lenders using company accounts. I thought most would be happy to speak to you about your income but the number of lenders actually going on contract rate or company accounts was still pretty low. It's not your money after all so is a big risk.

Maybe things have changed in the last couple of years since I got my first contractor mortgage.

I've no idea how common it is, but if you're the sole owner of a company, they can look at your accounts. There's basically a few ways you can apply:

-As an employee, so mainly on your salary (obviously not good for limited co contractors)
-As self employed/business owner director (they'll probably want as much info as possible, inc Ltd co. accounts)
-As a contractor based on daily rate/current contract.

Each lender is different, but the longer you're a contractor, the more options you have. Maybe some lenders will be happy to take your dividends as fixed income, some others might view this as variable income and therefore give it less weighting in their decision. This is why it's probably better to go with a specialist contractor broker, at least for the first time.

[FrontEnder]

Thank you. I suppose this is what I was afraid to hear.

Really started doubting about the whole mortgage idea now. Maybe it makes sense to wait until I at least file my 1st year contracting accounts before trying again

The only way to find out is to apply. Go for the agreement in principle and find out what they'll lend you and what deposit you'll need. If you're not happy with that, then go to another broker and see what they say.

Ultimately, you may pay a bit more as you are viewed as higher risk, so the product range you can get won't be as broad. But if paying a bit more means you get the house you want at today's prices, then it may well be worth it.

While house price rises may slow down after Brexit, no one is predicting that they will fall, so buying a house next year will probably be still more expensive than last year. Paying 1% more for a couple of years is probably better than paying 10-20k (for example) more in 2 years.

[northernladuk]

Thank you. I suppose this is what I was afraid to hear.

Really started doubting about the whole mortgage idea now. Maybe it makes sense to wait until I at least file my 1st year contracting accounts before trying again

I'd say it so worth doing a little more digging before dropping it. Find out why the rate is what it is and how that compares to other lenders you haven't quite got access to. Is it your LTV rather than anything to do with contracting etc.

Find out exactly what the problem is. If it is your LTV and you come back with the same value after two years you could have a bit of a shock that nothings changed and you've wasted a year etc. Get a plan together to get where you want as soon as possible.

[tractor123]

I was in the same situation last year and went through Freelancer financials, they advised the only lender who would accept based on my current contract would be Halifax. The gave me an agreement in principle, but only with a 15% deposit which scuppered my plans, so I didn't proceed.

Having worked for a long time at a high street bank, I'm not at all surprised by this. Most lenders will asses you as self employed or company director, so with less than 2 years full accounts (most likely you haven't even filed your first year's yet), it will be very difficult.

You'll have a lot more options when you've been going for longer than 2 years. A few lenders will be able to lend you based on your current daily rate, which means you'll be able to borrow more, but it's a big risk for the bank, so most will only do that with a good couple of years contracting history. Once you've been trading for 2 or 3 years, that will open up the market for you to traditional mortgage who can asses you based on your company accounts, but they won't lend you as much as the contractor specialists.

Thank you. I suppose this is what I was afraid to hear.

Really started doubting about the whole mortgage idea now. Maybe it makes sense to wait until I at least file my 1st year contracting accounts before trying again

[northernladuk]

I was in the same situation last year and went through Freelancer financials, they advised the only lender who would accept based on my current contract would be Halifax. The gave me an agreement in principle, but only with a 15% deposit which scuppered my plans, so I didn't proceed.

You also have to bear in mind each lender has their own criteria. Some will want you to be less than 50% through the contract, another won't accept anyone with gaps over a certain length in the last few years etc. Even if the numbers match and you have more than 15% deposit other criteria can come in from left field and trip you up.

Having worked for a long time at a high street bank, I'm not at all surprised by this. Most lenders will asses you as self employed or company director, so with less than 2 years full accounts (most likely you haven't even filed your first year's yet), it will be very difficult.

You'll have a lot more options when you've been going for longer than 2 years. A few lenders will be able to lend you based on your current daily rate, which means you'll be able to borrow more, but it's a big risk for the bank, so most will only do that with a good couple of years contracting history. Once you've been trading for 2 or 3 years, that will open up the market for you to traditional mortgage who can asses you based on your company accounts, but they won't lend you as much as the contractor specialists.

I'm a little surprised by this. I remember when I was searching first time I went to a number of high street lenders and when I mentioned the less thank 1 year they said no problems, they'll just top up the 2 years with the information from perm employment. They seemed pretty clued up with the fact they'd need to speak to my accountant and the like. I just found I was spending an inordinate amount of time searching so went to Freelance Financials that did all that for me.

I'm a little surprised by the comment regarding traditional mortgage lenders using company accounts. I thought most would be happy to speak to you about your income but the number of lenders actually going on contract rate or company accounts was still pretty low. It's not your money after all so is a big risk.

Maybe things have changed in the last couple of years since I got my first contractor mortgage.

[FrontEnder]

I've been lurking around for over a year, decided to create an account now that I have a question.

I have applied for a mortgage via broker with less than 12 months contracting history, and she seems to only have access to one mortgage product with pretty high rate.

Is this right? Don't I have any choice between products just because I am contracting for less than a year?

I was in the same situation last year and went through Freelancer financials, they advised the only lender who would accept based on my current contract would be Halifax. The gave me an agreement in principle, but only with a 15% deposit which scuppered my plans, so I didn't proceed.

Having worked for a long time at a high street bank, I'm not at all surprised by this. Most lenders will asses you as self employed or company director, so with less than 2 years full accounts (most likely you haven't even filed your first year's yet), it will be very difficult.

You'll have a lot more options when you've been going for longer than 2 years. A few lenders will be able to lend you based on your current daily rate, which means you'll be able to borrow more, but it's a big risk for the bank, so most will only do that with a good couple of years contracting history. Once you've been trading for 2 or 3 years, that will open up the market for you to traditional mortgage who can asses you based on your company accounts, but they won't lend you as much as the contractor specialists.

[WTFH]

It's not just about your accounts, but the LTV - i.e. the size of the mortgage compared to the value of the property.
If you put down a bigger deposit, you'll get more options on who will lend to you and you'll probably get better rates.