Contractor mortgage tips
Here are 10 well-tested things in touch in mind when applying for a mortgage – aimed specifically at Ltd. contractors and consultants.
1. Focus on your credit score
One of the primary things a prospective lender will do is subject your application to a credit check. Any missed payments or CCJs will put a dent in your chances to secure a mortgage – or limit the quantity you'll borrow. check in to Noddle or MSE Credit Club (both free with no catch) to see your credit status, and iron out any errors which can exist. confirm you and any co-applicant(s) are on the electoral roll for your current residential address.
2. More choices with a better deposit
Most lenders require a deposit of 10% or more lately. Lenders also are more likely to be more risk averse in post-COVID times. The more you'll put down, the greater the range of products you'll be eligible for. The interest rates offered can drop significantly if you'll raise 20%, 25%, or more.
3. Make sure your mortgage is affordable
Many people stretch themselves the maximum amount possible so as to secure the property they need. this is often understandable, however, you ought to be sensible when understanding how affordable repayments are going to be, especially if you have already got significant outgoings. Importantly, the Bank of England may raise the bottom rate, which suggests lenders will raise their variable rates, and expire the increase to their clients. you'll be ready to afford repayments at, say, 3%, but what if they rise to 5%?
4. Use a contractor mortgage specialist
There are some ways to settle on a mortgage broker. Many simply get in-tuned with the financial services desk at their local bank, et al. use the well-known comparison sites because the first port of call. However, thanks to the actual way Ltd. We strongly advocate contacting a contractor expert to work with contractors.. they're going to have access to specially negotiated rates with friendly lenders, and that they understand the peculiarities of contract work. The leading lenders are going to be ready to secure you a mortgage albeit you've got only been working as a contractor for a brief time.
5. Make sure your contract paperwork is up-to-date
Many contractors don’t yet have several years’ company accounts to use during the loan application process. However, a specialist broker is going to be ready to arrange a mortgage with just your current contract paperwork (and the traditional ID documents). To confirm you've got your contract (and any past ones) able to submit it together with your application. confirm all the small print on the contract (client, rate, your name, etc.) are correctly recorded.
6. Have your personal identification documents handy
Whether you employ your current contract as proof of income, or your company accounts (if you've got several years’ worth), you'll get to provide various pieces of paperwork to the lender. altogether cases, you'll need proof of your name and address (passport, driver's license, utility bills), and up to date bank statements. If you’re using your accounts as proof of income, you'll need signed copies of the past 2 or 3 year’s company accounts, and/or copies of your previous couple of year’s HMRC SA302s. you'll get to contact HMRC to get printed versions of SA302s (tax calculations), although some lenders are now happy to use copies you've got printed faraway from your online tax account yourself.
7. Avoid lengthy gaps between contracts
Mortgage lenders don't like risk, and if you've got gaps longer than 6 weeks between contracts, or if your company accounts aren’t reasonably consistent over a period of your time, this might count against you. Often, a lender will take a mean of your past 2 or 3 years’ accounts (if you’ve been contracting for a while). If your most up-to-date year’s net income is significantly less than previously, however, they'll prefer to use the foremost recent accounts as a basis for understanding what proportion they're prepared to lend you.
8. Do some basic research before you apply
It is sensible to a minimum of research the basics of mortgage borrowing before you approach a broker in order that you've got realistic expectations. There are many various products available – from the tracker and discounted rates to offset mortgages. you ought to also determine the difference between fixed and variable rates, and other common mortgage-related jargon.
9. Will your lender allow overpayments?
There could also be times once you have spare cash, which you’d rather use to offset against the capital of your real estate loan, or just to pay down the outstanding value of the loan. Many mortgage products leave overpayments, but others don’t. confirm you'll make reasonable overpayments without risking penalties, or alternatively seek an ‘offset mortgage’, which takes under consideration the worth of your savings then ‘offsets’ this amount against your outstanding real estate loan.
10. Watch out for extra charges and penalties
In recent years, you'll have noticed that increasing numbers of lenders now charge additional fees for mortgage applications, instead of increasing the interest rates on loans. Typical ‘extras’ include
Arrangement fees (often for £1000 or more).
Valuation fees (to establish the worth of the property you're buying).
Early repayment charges (these are often significant – many thousands if you repay your loan early).
These fees can often be added to your mortgage, so you'll not even notice within the short-term, however, they are doing increase the important cost of your mortgage.
The annual percentage rate of charge (APRC) is that the total cost of the mortgage expressed as an annual percentage – your broker should provide you with the APRC for every product you're interested in in order that you'll make an accurate comparison of various illustrations.
Moreover, we provide accounting services to several contractors in the UK as Cheap Accountants in London. Whether it's IR35 status advice or preparing on how best to need your salary or dividends, give us the above sum to speak to at least one of our experts or book your free consultation to address any questions you may have.
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