Reply to: How will the "Self-Cert" ban affect Contractors

[BenchMaster]

Let’s now dissect the words Freelance Contractor, to Freelancers and Contractors. We often put these people in the same group or category because of the difficulty in defining their roles. Generally, a contractor is someone that has a 6-12 month contract, working on a daily or hourly rate. In contrast, a freelancer would be someone working on shorter-term contracts, typically 1-3 months, or on assignment, project etc. For example, a photographer’s income is mainly based on variable or non-regular earnings. In these difficult financial times, their income is even more erratic. There are, therefore, certain situations where killing self-cert should not be applicable.

Sorry for the newbie question: I have a very stable position on the bench. Should I class myself as a Freelancer or a Contractor?

[Freelancer Financials]

Sorry DimPrawn it's not that simple at all

Not really. As permie they just want to see 6 months pay slips.

If you've just gone contracting you could show the company bank account showing 6 invoice payments. As the director, that money after tax is all yours, so where's the problem.

I'll say it again. Self cert is where you produce no evidence of income whatsoever.

People are confusing self cert (liar loans) with self employment.

Not so I'm afraid. They typically need to provide P60, 3-months personal bank statements showing their salary going into that account and 3-6 months payslips. With some banks (Halifax, Woolwich & Abbey) If their LTV is below 70-75% and their credit score is an high, they can be "FAST TRACKED". This means that no income verification is required".

Self-Employed Freelancers or Contractors with LTD companies are assessed in a different way. Each lender has their preferred assessment criteria for determining what qualifies as relevant earnings for lending purposes - some will look at net profits (this is more desirable), others at drawings (basic salary plus dividends) or may just look at (salary combined with net profits) or in the worse case just salary. Here comes the crunch, for tax reasons, many self-employed workers working through a limited company will draw a minimum salary and also restrict dividend payments to avoid higher rate tax. Although this is a perfectly reasonable tax planning, it also has the unintended consequence of reducing the amount you are eligible to borrow under the standard criteria used by most mortgage lenders. A good accountant will always look at ways to help you minimise your taxes. That is why some self-employed workers can not use their accounts to support their mortgage application. Instead they will apply to a lender (through a mortgage specialist) who will be able to base their earnings on a multiple of their contract rate.

[Freelancer Financials]

I agree that Self-Cert mortgages don’t have a place with respect to self-employed Freelance Contractors. Or should I say those freelance contractors that are able to produce the following documentation:

1. 2-3 years certified accounts

2. 1-2 years accounts accompanied with 6-months personal and company
bank statements

3. Contract stating hourly/daily rate along with a CV (through a specialist
mortgage broker)


Let’s now dissect the words Freelance Contractor, to Freelancers and Contractors. We often put these people in the same group or category because of the difficulty in defining their roles. Generally, a contractor is someone that has a 6-12 month contract, working on a daily or hourly rate. In contrast, a freelancer would be someone working on shorter-term contracts, typically 1-3 months, or on assignment, project etc. For example, a photographer’s income is mainly based on variable or non-regular earnings. In these difficult financial times, their income is even more erratic. There are, therefore, certain situations where killing self-cert should not be applicable.

I can see why the FSA wants to act, because there has been abuse of self-cert and fast-track mortgages. However as long as some new controls on these products were introduced, there should really still be some flexibility for the individuals they were designed for, but the FSA has decided otherwise. As for people already with self-cert mortgages, the FSA's proposals will, in many cases, cause financial hardship by stopping them from moving to other lenders to obtain better deals.

It is important that lenders can still exercise a level of discretion and common sense with respect to what qualifies as relevant earnings for lending purposes. As long as lenders continue to have that discretion the “contract based mortgage underwriting” will thankfully still remain intact.

[Freelancer Financials]

Sorry!

Sorry folks reading it back it was a bit spam like. I must have got a bit carried away with my enthusium for this particular subject

[Svalbaard]

When I applied for my mortgate, First Direct were happy with two years company accounts and a combination of invoices and payslips.

But back to the question, how will it a SC ban affect contractors? MMmmm I'm guessing it will force them to think twice before taking on more than they can afford in such a volatile labour market.

[NotAllThere]

Real contractors pay for houses by sending their man, with a transit full of gold bars.

ftfy

[Moscow Mule]

Real contractors pay for houses by sending their man, with a transit stuffed with £50 notes.

FTFY

[NotAllThere]

How will the "Self-Cert" ban affect Contractors

Real contractors pay for houses by sending their man, with a briefcase stuffed with £50 notes.

[BrilloPad]

In light of all the recent headlines on the FSA banning "self-cert mortgages" and continued tightening of lending criteria for self-employed workers we have posted an article <removed by mod> on our web site that address contractors concerns about how these changes might affect their chances of getting a mortgage.

But even in these difficult financial times securing a mortgage does not need to be an issue for a Contractor. The key is to ensure that the mortgage application is properly packaged and is placed in front of the right decision makers within the lending institutions.

An experienced Contractor specialist mortgage broker will have direct contact with key people within the lenders head office senior underwriting teams and hopefully, like us, will be able to base your earnings on a simple multiple of your contract rate alone.

This means that you don’t have to rely on the traditional method of using accounts, which may not fully reflect the total earnings that you have at your disposal, for income verification on a mortgage application.

No! No! No!

What you should have done is just ask the question "How will the "Self-Cert" ban affect Contractors" : then slipped in your thoughts using sockpuppets.

Spam is just not the same anymore. 1/10. Must try harder.

[DimPrawn]

A bit sticky if you have been contracting / self-employed for under 3 years or whatever the period is. Can you submit payslips for the previous period to make it up to 3 years? Or do they want to see that your self-employment has consistently been profitable?

What happens if your annual figures are varied? Say year one you work 250 days at £400, then year 2 only 100 days at £250, before improving again in year 3. How do they decide the 'income'? Lowest from 3 years, average,...?

Not really. As permie they just want to see 6 months pay slips.

If you've just gone contracting you could show the company bank account showing 6 invoice payments. As the director, that money after tax is all yours, so where's the problem.

I'll say it again. Self cert is where you produce no evidence of income whatsoever.

People are confusing self cert (liar loans) with self employment.

[d000hg]

I'm not sure what the fuss is.

They're banning self cert, this is where no evidence of income is required.

For contractors, surely producing company account figures is all that is required, or showing bank statements with income from invoices into the company, contracts etc.

No different from a permie producing a wad of payslips.

A bit sticky if you have been contracting / self-employed for under 3 years or whatever the period is. Can you submit payslips for the previous period to make it up to 3 years? Or do they want to see that your self-employment has consistently been profitable?

What happens if your annual figures are varied? Say year one you work 250 days at £400, then year 2 only 100 days at £250, before improving again in year 3. How do they decide the 'income'? Lowest from 3 years, average,...?

[sasguru]

Nothing upsets people more than seeing someone else get something with little effort when they themselves had strived to achieve the same.

Isn't envy a sin ?

Eh?

[Platypus]

"liars mortgages"

Nothing upsets people more than seeing someone else get something with little effort when they themselves had strived to achieve the same.

Isn't envy a sin ?

[sasguru]

So what you're saying is that "liars mortgages" as they were dubbed in the US are alive and kicking in the UK?

[Spacecadet]

Or a letter from the accountants showing earnings for the past x years