Securing a mortgage often feels like navigating a complex and intricate maze, particularly for contractors. For those in traditional employment, the path to mortgage approval might appear more straightforward, but contractors encounter unique challenges that can make the journey seem significantly more daunting. Nonetheless, achieving mortgage success as a contractor is entirely possible with the right approach, preparation, and guidance. The key to demystifying the mortgage process for contractors often lies in obtaining clear, expert advice to pave the way for a successful mortgage application. This post will examine how hard it is to obtain a mortgage as a contractor, and how to make that process easier by knowing the ideal journey to success.
Understanding the Challenge
For many mortgage lenders, the perceived instability associated with contract work can generate concerns regarding long-term financial stability and reliability. This scepticism makes it inherently more challenging for contractors to secure a mortgage when compared to their permanently employed peers. However, it's crucial to recognise that while the road may appear bumpier for contractors, it is far from impassable. By gaining a comprehensive understanding of the mortgage landscape and preparing adequately, contractors can significantly enhance their chances of mortgage approval.
There is the perception that it is harder for contractors to get a mortgage.
It is important to understand what the challenges are, and the reasons why.
Despite the challenges, it is possible to have a hassle-free process for obtaining a contractor mortgage, as long as you understand the concerns of lenders and can supply evidence why these concerns do not apply in your case.
Understanding How Hard It Is to Get a Mortgage as a Contractor
If you are contractor looking to step onto the property ladder, or perhaps to move up it, you need to first understand the perceived risk that lenders see when lending to those on non-permanent contracts. For contractors, this path often comes with its own unique set of challenges. However, with the right guidance and understanding, securing a timely and competitive contractor mortgage is entirely within reach. In this post, we'll explore the hurdles contractors might face in getting a mortgage and how to overcome them, supported by success stories such as that of our client, Robert.
The Unique Challenges for Contractors
Contractors will find themselves at a disadvantage with traditional lenders due to the nature of their work, especially if you try to go it alone directly with a bank. The primary concern for lenders is the perceived risk associated with fluctuating income, short-term contracts and gaps between assignments. This can make the process seem daunting for contractors, but understanding the landscape and seeking impartial and specialised advice can significantly ease this burden.
Navigating Lender Concerns
Lenders typically favour stability, which is often measured through permanent employment and a consistent salary. For contractors, proving financial stability requires a different approach. Documents such as your contract history, current daily or hourly rate, and invoices become key in demonstrating reliability, financial health and therefore long-term affordability for a mortgage.
Importance of Specialist Advice
This is where the value of a contractor mortgage broker shines! A specialist in the field understands the nuances of contractor incomes and knows which lenders are more receptive to non-traditional employment types. They can tailor your application to highlight your financial strengths, greatly improving your chances of approval. Even if you know which lenders are ‘contractor-friendly’ you can still end up with a declined application unless you understand the intricacies of detailed lending policy that banks have for contractors.
Case Study: Robert's Success Story
Consider the story of Robert, a contractor who faced rejection from Halifax due to their traditional lending criteria. Robert used Halifax as his contractor colleagues had mentioned this lender was the best one to use for contract workers. Following the application process and then the refusal, Robert gave up hope, until 4 months later another contractor asked him to give Cleerly a try as their mortgage had been approved quickly. Robert spoke with William Coe, a contractor specialist at Cleerly, and not only did he receive a mortgage approval within 10 days, he was also told why Halifax did not approve the original application. Fast forward several weeks, and Robert was the proud owner of his first home! Unfortunately, there were several months wasted due to the direct approach to Halifax. This expertise and service-oriented approach enabled Robert to transition from disappointment to becoming a satisfied homeowner in a matter of weeks!
How to Increase Your Chances of Mortgage Approval as a Contractor
- Professional Representation: Engage with a contractor mortgage broker who understands your unique situation and can present your circumstances to the right lender on your behalf.
- Comprehensive Documentation: Prepare your documents meticulously in advance under the guidance of your contractor mortgage adviser, proving your income stability, reliability, ensuring any supporting documents are known and readily available before you need to present them.
- Understand Lender Variability: Each lender has different criteria. A specialist broker can help you find the most compatible options for your situation, obtain a suitable agreement in principle, and then monitor whether this lender continues to be the best one for you until you need to make the mortgage application. Interest rates and lending policy can change over time, so it is important to have someone stay on top of this for you.
- Build a Strong Application: With expert advice, ensure your application highlights the strengths of your financial position and contracting experience. For example, make sure you can access previous contracts in case they are needed. Any gaps between contracts should be explainable and provable if requested by the lender.
- Stay Informed: Lending policy and interest rates can change. Keeping abreast of the market will help you adapt your strategy as necessary. Your contractor mortgage broker can do this for you as long as you stay in regular contact.
Certainly, getting a mortgage as a contractor involves hurdles not faced by those in permanent employment. However, with the right approach, informed by professional and expert advice, securing a mortgage is not just a possibility but a realistic outcome. Robert's story is a testament to the success that can be achieved when working with specialists like Cleerly. If you're a contractor seeking to buy or refinance a home, don't be discouraged by the challenges. With perseverance and the right support, a quick and hassle-free contractor mortgage can be obtained with very little stress and uncertainty.