If you need a contractor mortgage, Lloyds/Halifax can be a good place to start as its underwriters have a good understanding of the market. Halifax was one of the first lenders to use contract-based underwriting, where the gross contract day rate is annualised for the purposes of deciding how much you can borrow.
If you are an IT contractor or a contractor whose income is more than £500 per day or £75,000 per annum, Halifax will accept the gross value of the contract as evidence of income. Applicants must have a continuous employment of 12 months or more with six months of the contract remaining, or two years’ continuous service in the same type of employment.
What criteria is a Lloyds contractor mortgage assessed under?
Those in salaried employment can easily evidence their income via payslips and contracts, showing what they have earned in the past and will earn in future. If you are self-employed, you may be able to demonstrate past earnings but proving future earnings may not be so straightforward.
Part of the problem is that contractors’ income can change from month to month. Lloyds therefore recommends that contractors first work out whether they can afford the mortgage repayments over the long term, given the unreliability of their income. Existing debts are also factored in when assessing affordability to see whether the proposed mortgage payments are reasonable.
If you are applying for a contractor mortgage via Lloyds you will need to provide tax calculations and a tax year overview (SA302), showing your earnings and the tax you have paid. In addition to a copy of your contract, the lender also needs to see your latest personal/business bank statement showing the salary credit. Where you cannot supply the preferred documentation, Lloyds will request an employer’s reference to verify income.
The pandemic has meant that lenders are looking more closely at self-employed income to ensure it is sustainable. Lloyds will want to know what your profits are and how these have changed over the years. This will demonstrate that you earn a steady income and can make regular mortgage payments.
If you have recently become a contractor, it will be harder to get a contractor mortgage. In this case, Lloyds says that evidence of future earnings or contracts, along with a strong credit history, will be more important than ever.
How AWS can help
AWS helps many contractors find the right mortgage for their circumstances. We often use Lloyds for contractor mortgages because they have reasonable criteria and understand how contractors are paid. To find out how much you could borrow, get in touch. ends.