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Different types of contractor

When it comes to contracting, contractors can choose how they contract to a business. The type of contracting you do affects how you apply for a mortgage and what you can afford. It will also determine what you need to provide to prove your income.

 

The main types of contractor are:

 

Fixed term contractors

Fixed-term contractors work on a specific project or for a fixed duration. They are usually hired to fulfill a particular role within an organisation for a set period. This type of contract provides stability for both the contractor and the employer.

 

Day rate / hourly contractors 

As their name suggests, day rate or hourly contractors are paid by the day or hourly for the work they do. They might work on a specific project or for a fixed term or might be brought in adhoc for example if working on a consultancy basis. Contractors can be paid via an umbrella company, directly through the clients payroll, through an agency or via their own personal service company.

 

Umbrella contractors

Umbrella contractors work under an umbrella company that acts as an intermediary between them and their clients.  The umbrella company handles administrative tasks such as invoicing, tax deductions, and employment contracts. These contractors may also enjoy additional benefits, such as employment rights. Many contactors use umbrella companies, limited companies or personal services companies to manage their income for reasons of tax efficiency. All contractors need to be aware of IR35 legislation, created to prevent tax avoidance.

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How do mortgages for contractors differ from conventional mortgages?

There aren’t specific mortgages for contractors although some high paying professional contractors can get more favourable terms with lenders and borrow more, compared to other roles. Contractors are assessed differently to individuals employed in other ways and each lender has different criteria. Some contractors can therefore face challenges when it comes to applying for a mortgage.

  1. Type of contract – Some contractors can struggle to get a mortgage or borrow the amount they need based on the type of contract that they have. Some lenders don’t like umbrella companies, others might just treat you as self-employed even if this isn’t the right fit for you. This could mean that all of your income isn’t taken into consideration when calculating your loan, or worse none of your income is used. Another obstacle some contractors face is when the type of contracting they have done has changed. Perhaps you were a fixed term contractor who then moved to a daily rate contractor through an agency. These types of situations are fairly common, so please speak to our team who can offer advice on your options.
  2. Contracting history – Your contracting history can also have an impact on your ability to borrow. If you’ve had gaps in your employment history, haven’t been contracting long or don’t have long left in your current contract, it can be harder to get a mortgage. Lenders generally like you to have contracted for at least 1 year and want to see a minimum of 3 months left on your current contract. If you fall short of this criteria, try not to worry – it may still be possible to secure a mortgage. Speak to our team to find out more
  3. Contracting documents – If you’ve lost paperwork, or don’t have paperwork to document parts of your contracting history this can also cause issues – especially if the project was a few years ago.
  4. Income consistency – The nature of contracting work, like with other types of self-employment, is that income can be inconsistent. Lenders income assessments can also vary from lender to lender particularly if you are a daily rate or hourly contractor. Borrowing can sometimes be based on the daily rate and multiplying by 5 (number of days worked) and then by 46 (average number of weeks worked in the year)  – regardless of how many weeks a contractor has actually worked. This type of calculation is usually favourable as it provides a high borrowing amount.
  5. Lender access – Not all lenders accept contracting income which is why it’s so important to work with a specialist mortgage advisor. Our team of mortgage advisors have experience of working with contractors and so we know which lenders are more flexible and sympathetic in their criteria towards contractors.

Whatever obstacle is preventing you from securing a mortgage, our experienced team can offer help and advice to help you achieve your property goals. Speak to our friendly team on 0333 090 2025, to find out more.

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Mortgages for contractors: Ways to increase your chances of getting approved for a loan

When applying for a contractor mortgage, there are several steps you can take to improve your chances of approval. Consider the following tips:

  • Keep an accurate employment history with copies of all your contracts (past and present) going back a few years along with evidence of your income for each year.
  • Maintain a good credit score – Ensure that your credit history is in good standing by paying bills on time and minimising outstanding debt.
  • Save for a larger depositWhile some lenders offer competitive mortgage deals with smaller deposits, having a larger deposit can increase your options and improve your chances of approval.
  • Keep your financial records organised – Maintain accurate records of your contracts, invoices, and business accounts. This documentation will help demonstrate your income stability and financial responsibility to lenders.
  • Work with a specialist contractor mortgage advisor – Partnering with a mortgage advisor who specialises in contractor mortgages, like Simple Fast Mortgage, can streamline the process. We have experience working with contractors and understand the unique challenges you may face.
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Why choose Simple Fast Mortgage to help secure a contractor mortgage?

At Simple Fast Mortgage, we specialise in helping contractors secure mortgages tailored to their specific needs. Here’s why you should choose us:

 

  • Expertise: We have in-depth knowledge of the contractor mortgage market and understand the intricacies of different contractor types. Our advisors can guide you through the application process and provide personalised advice based on your circumstances.

 

  • Extensive lender network: We have established relationships with a wide range of mortgage lenders, including those who specialise in contractor mortgages. This enables us to access exclusive deals and find the most suitable mortgage options for you.

 

  • Simplified application process: We streamline the mortgage application process, making it faster and more efficient. Our team handles the paperwork, liaises with lenders, and keeps you informed every step of the way.

 

  • Personalised solutions: We recognise that every contractor’s situation is unique. We take the time to understand your specific needs and financial goals, tailoring our advice and mortgage recommendations accordingly.

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Why choose Simple Fast Mortgage to help secure a joint borrower sole proprietor mortgage

Our experienced mortgage advisors understand that in many cases, individuals need help from family and friends to buy the property of their dreams. We’ve helped many borrowers join the property ladder using our experience and extensive knowledge of the mortgage market. Our team will take the time to listen to your individual needs to find out what your main obstacles to finding a mortgage have been. We’ll then find a lender who is familiar and more understanding of your situation so that we can secure the right mortgage for your circumstances. The “income boosters” on your application will also need to obtain independent legal advice, before embarking on a JBSP mortgage. Our advisors work with a network of legal advisors who are knowledgeable on this type of finance and will be only too happy to refer you to one who can help.

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