Getting a mortgage can be slightly trickier for contractors than for permanent employees, so having a good contractor mortgage lender could mean the difference between you getting your dream home and unnecessarily lengthy processes and paperwork causing it to slip away.
The traditional criteria that most mortgage lenders use to assess applications is not suitable for the contracting lifestyle, and as such often results in a large number of contractors being declined for mortgages which they are more than capable of repaying. This sparked the birth of the ever-popular contractor mortgages, which foster much more realistic application criteria, as well as the ability to offer competitive rates.
Unlike traditional banks and building societies that base the maximum they are willing to lend on salary alone and are wary of the short-term nature of contracts, contractor friendly lenders are much more flexible.
For most people a house is the biggest purchase they are ever likely to make so choosing the right mortgage lender is vital. Here are 5 top tips to bear in mind when choosing your lender:
1) Beware of tie-ins. Many mortgage lenders will try and entice you to sign up to their deal with tempting short term rates. However, once you have signed up you end up staying with them long term even though they dramatically increase their rates after the initial deal period ends.
2) Compulsory insurance clauses. Some mortgage lenders will insist that when you take out a mortgage with them you must also opt in to pay for their additional services. These add-ons such as home insurance and unemployment cover are rarely value for money and can mean that in the long run your chosen mortgage might not work out the cheapest.
3) Rate of processing. Buying a house can be a lengthy process. However, some lenders are known for moving quicker than others and therefore those with time constraints may choose to go for a slightly less favourable rate for a quickly processed application in order to secure their home. Specialist contractor mortgage providers can often help if you need to progress quickly as they are better placed to understand your situation from the offset.
4) Buy-to-let mortgages. If you are hoping to secure a property that you intend to let out it should be declared as a buy-to-let mortgage. Although it should be declared, the fact that you will be not living in the property yourself, but letting it out, should not make a difference to your lender – the rates offered should be similar to normal residential rates and there should be no large admin fees for you to pay on top.
5) Mortgage indemnity insurance premiums. You are only likely to come across mortgage indemnity insurance premiums if your deposit is less than 5% or in other rare cases. They are designed to help protect the lender in the event that you should experience negative equity. This benefits the lender but you will still be liable for the money that the insurer has given to the lender and there will be a premium to pay on top as well.
Please visit ContractorUK for more contractor mortgages information.
Many thanks to Laura Foster for this post. Laura writes for ContractorUK on various topical issues surrounding the contracting market including new and existing legislations, jobs, interviews, training, money and service providers.