Contracting via an umbrella might be a new to you or something you have plenty of experience of. Either way, how mortgages are underwritten for those paid via an umbrella has changed significantly in recent times so it is important to understand what these changes are and the effect it could have on your ability to access mortgage finance.

Umbrella Mortgages History
In recent years the government has tightened up its rules on the tax position on contractors. This has led to a substantial increase in the number of contractors moving from being paid via their limited companies to umbrella and payroll arrangements.
As the vast majority of day rate contractors had been paid via their limited companies, mortgage lenders in the contractor space developed policy and criteria that reflected this. Usually asking only for a copy of the contracts and bank statements for the limited company to prove the contract proceeds are being received. Prior to the IR35 changes a client being paid via an umbrella company was treated in a similar way to those paid through their limited company and on the main lenders were happy to replace the requirement for limited company bank statements with personal ones. Simple.
The IR35 shake up and the resulting increase in umbrella applications has forced lenders to review their contractor lending policy. The good news is that the way lenders effectively treated contractor clients as employees on a multiple of their day or hourly rate remains unchanged, there has however been some significant changes that umbrella contractors need to be consider when looking to secure mortgage finance.
Where Are We Now?
One major change is that most lenders will now ask for payslips as well as the contract and bank statements. How lenders treat these payslips differs wildly which is why care must be taken before applications are submitted. For example, instead of using a simple day rate calculation to establish income, one of the biggest contractor friendly banks will take an average of the income on the last 3 payslips, deduct any pay labelled 'Holiday' and reduce any 'bonus' element by 50%! This can have a dramatic impact on the level of borrowing available. In addition, other lenders will look to deduct any payroll services costs and/or employers National Insurance contributions before calculating income. There are some lenders however who do none of the above and continue to treat limited company and umbrella contractors in the same way.
Identifying which mortgage companies can help which contractor clients is certainly a more challenging task than it was previously.
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If you would like to learn more about mortgages for umbrella contractors then book an appointment with an adviser to explore further.
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