Keep an eye on your credit rating. This is true of any borrower, not just contractors. You may earn a good income but if your credit rating is poor, you won’t be able to get a mortgage. Be ruthless about not missing a single payment, whether it’s your existing mortgage or rent, your mobile phone or your credit card as lenders will want to see evidence that you can handle credit and make payments on time. Before applying for a mortgage, it’s worth checking your credit file to ensure there are no mistakes – if there are, you can apply to have a note added to your file explaining the situation.
Get together your paperwork. This is true for any borrower but contractors will need to provide more information to satisfy mortgage lenders. You will need a copy of your contract, bank statements and proof of ID. Make sure you are on the electoral roll as well.
Try not to take long breaks between contracts. Lenders want to see consistent earnings from contractors so make sure there are no long gaps between contracts. If there are, it might be worth delaying your mortgage application for a while until you’ve built up a healthier track record of earnings.
Save a decent deposit. A 10 per cent deposit might not cut it these days, with lenders more cautious about higher loan-to-value (LTV) lending in the wake of the pandemic. There are few 90 per cent LTV deals available, they are harder to get than lower LTV deals and rates are more expensive. The more money you put down as a deposit, the easier it will be to get a mortgage and the better the rate you will get. If you haven’t got much of a deposit, consider saving for a while longer to build up a bigger pot.
Consult a whole-of-market broker, such as AWS Financial Services. This should be your first step before making any mortgage application because most high-street lenders won’t take a day rate into account when deciding how much contractors can borrow. They may use the fact that you are self-employed instead, taking salary and dividends from the past two years’ accounts. This may not be a fair reflection of your income, particularly if you have retained profits in your business. At AWS Financial Services, we know which specialist lenders to approach and how to present your financial situation to put you in the strongest possible position from a mortgage perspective.