Contractor Specialists
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 have developed policy and criteria that reflects this. Usually asking only for contracts and limited company bank statements to prove the contract proceeds are being received. Prior to the IR35 changes on the relatively rare occurrence of a client being paid via an umbrella company, lenders on the main were happy to replace the requirement for limited company bank statements with personal statements. Simple.
​
The IR35 shake up and the resulting increase in umbrella applications has forced lenders to review their contractor mortgage lending policy. The good news is that the way lenders have 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?
A major change is that most lenders will now ask for payslips as well as the contract and bank statements. How lenders treat the payslips is different from lender to lender which is why care must be taken to review this 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 who do none of the above and continue to treat limited company and umbrella contractors in the same way.
​
As specialists in mortgages for contractors we use our knowledge and experience to ensure umbrella clients are able to maximise their borrowing capacity and can access the most competitive deals. We take the worry out of mortgage applications by confirming the requirements and criteria before submission.
​
​
