Contractor Remortgages

What are contractor remortgages?

A contractor remortgage refers to the remortgage of a property being taken by a person that is paid on a fixed term contract basis.

For example, this may be a software developer that is earning £300 per day and has a fixed term contract with another company that will expire on a certain date. This may mean that the contract has six months remaining on it and after that time, the contractor will need to look for another company and another fixed term contract.

Some lenders see this as higher risk as when the current contract ends, if there is no demand for this persons services, they may find themselves without an income.

Contractor remortgages usually allow for contractor to borrow based on the day rate of their current contract using the lenders chosen calculation.

Can a lender use the day rate of the contract when lending on contractor remortgages?

There are lenders that can use the day rate of the contract rather than looking at the contractors income as a whole over a past period.

For instance, if a contractor is paid £300 per day, certain lenders will use this figure for their calculation. A common calculation is the day rate of the contract x 5 (days) x 46 (weeks).

With a lender using this calculation, this would mean that the contractor is seen as being on £69,000 with the lender using this income to calculate their affordability on.

Different lenders will have a different calculation when assessing affordability. Some lenders will not even use the day rate of the contract and will instead assess the tax documents treating the individual as a standard self employed applicant.

This may have a negative effect on the applicant as they may need to have been contracting for a longer period to have the a number of accounts needed to meet the lenders criteria. The income on the individuals tax paperwork may also be lower due to them being able to offset certain expenses.

To find out which lenders will lend on the day rate of your contract and how much you may be able to borrow, it’s always best to talk to an experienced mortgage adviser.

Do I need to have been contracting for a certain amount of time to qualify for contractor remortgages?

Most lenders will require you to have been contracting for a certain amount of time before they are willing to lend you money on contractor remortgages or purchases.

Many will not be prepared to lend to you when you have only just begun contracting as they want to see you gain experience working in this way before they lend. The amount of time that they need as a minimum will vary between lenders and they may also change this rule from time to time.

A common minimum contracting period is 12 months and lender will also likely need to see that you have been in that same industry for a longer period of time, such as two years.

Some lenders can be cautious about the amount of time that is between your contracts, for example if there was a three month gap between your last one and the one that you have just begun, some lenders would not accept this.

If you are interested in applying for contractor remortgages, it would be prudent to talk to a qualified professional mortgage adviser that could look at your contracting situation and work out which lenders may be able to offer you a contractor remortgage. Read more about: Zero Hour Contract Mortgage

What is IR 35 and how does this affect me when applying for contractor remortgages?

The IR35 is a set of regulations that determine whether a worker is an employee or self-employed for tax purposes. It is designed to prevent contractors from avoiding paying income tax and National Insurance contributions by operating through an intermediary, such as a limited company.

If a worker provides services to a client through an intermediary and the worker would be an employee of the client if they were not using the intermediary, then the worker will be treated as an employee for tax purposes and will be subject to income tax and NICs on their earnings.

If a lender feels that the contractor should be on the payroll of a company (for example, they have been working there every day for five years but still paid a day rate into a separate company) they may be uncomfortable lending.

To find out more about ‘off-payroll’ working and IR35, click here to see information from HMRC.

Another website that may be a useful resource for day rate contractors to learn about subjects such as IR35, umbrella companies, accountants and recruitment is Contractor UK.

How long needs to be left on the contract to be offered contractor remortgages?

The amount of time that is needed to be left on your current contract to qualify for contractor remortgages will be different depending on the lender that you are looking at.

Some lenders will need a minimum of three months remaining on that current contract before they would consider you as a borrower for a mortgage. There are however lenders that can allow contracts with very short amounts of time remaining such as one month.

In a situation like this, the lender may ask for more information so that they can be comfortable that you will not be out of work within the next few weeks. This may mean asking for a letter of intent from the company that you are currently contracting to.

Lender criteria changes on a regular basis so ask your mortgage adviser to find you a lender that can consider your current contract.

Do I need a certain mortgage broker when applying for contractor remortgages?

You don’t necessarily need a certain mortgage broker when applying for contractor remortgages but it’s best that you use a mortgage adviser but has experience in arranging mortgages for contractors.

An experienced mortgage adviser will be able to talk to you about your situation working out when you started contracting, how long is left on the current contract and any other factors that they will need to take into consideration when looking for the correct lender for you.

I NEED ADVICE can arrange for a qualified and experienced mortgage adviser to reach out to you to tell you what your options are in regards to contractor remortgages.

How much can I borrow as a contractor?

The amount that you are able to borrow on a contractor remortgage will depend on many things.

These things being the way that the lender calculates your contract, the amount of deposit that you have, details of your debts and the monthly payments, details of any other commitments such as Car Loans, Student Loan and maintenance payments and your credit history.

When considering contractor remortgages, it’s best to talk to a mortgage adviser that can take all of the above into account to work out your borrowing potential.

Can you get contractor remortgages on buy to let properties?

Although they would not necessarily be referred to as contractor remortgages, it is certainly possible for contractors to apply to remortgage their buy to let properties.

Different buy to let mortgage lenders have different criteria so it will depend on the level of your income and when it started. Not all buy to let lenders will accept fixed term contract workers unless they were paid through a limited company and could demonstrate one to two years of company trading to then be assessed as a standard self employed applicant.

This will not be the case with all lenders though so if you are a contractor looking to remortgage a buy to let property, speak with a mortgage adviser that can understand your contracting income and look for a lender accordingly.

Does every lender offer contractor remortgages?

Not all lenders will offer contractor remortgages to day rate contractors and will insist that they provide self employed paperwork showing a certain period of time such as two years before they lend to this applicant.

This may make it a lot harder for somebody that has been contracting for a short amount of time, such as nine months, but working in the same industry for 10 years. In this situation, they would not have the two years of company accounts that many lenders would request so would then need to wait longer to be able to apply for a mortgage.

Fortunately there are many lenders that will lend on the value of the contract if the applicant meets the rest of the criteria so talk to an experienced mortgage adviser that can tell you your options.

What can I use the funds for when raising money with contractor remortgages?

There are many things that you can use the funds for when raising money with contractor remortgages. You may be looking to raise money for uses such as home improvements, deposits for buy to let properties, debt consolidation or raising money to gift to a relative.

The use of the money when raising capital using contractor remortgages will be the same as if you were raising money with any other type of remortgage.

The use of the money that is allowable will depend on the individual lender. Tell your mortgage adviser what you intend to use the money for so they can search for the correct lender.

Conclusion

It is certainly possible for day rate contractors to get contractor remortgages using the value of their contract but not every lender will do this.

If you would like I NEED ADVICE  to put you in touch with an experienced mortgage adviser that can tell you your options giving you individual advice, please complete the contact form.