Because you have probably heard plenty of people tell you “oh, you’re going to really struggle to get a mortgage because you are self-employed,” you probably think that your options are highly restricted. This is not the case; it’s all about choosing the right mortgage and presenting your earnings in the right way, which is what we do.
How Do Contractor Mortgages Work?
Contractor mortgages work in the same manner as standard mortgages, i.e. you borrow the money you need to buy a property, you then make monthly payments with interest, and eventually, you pay the mortgage back at some point dependent on the mortgage term selected.
Of course, this all makes it sound very easy, when, in fact, it’s quite complicated! This is because there are many different variables to consider. This includes the following:
- Different interest rates
- Various charges to pay
- Specific mortgages designed for special situations
- Borrowing for varying periods of time
- Different repayment structures
- Affordability, each lender has its own assessment structure
We can help you to navigate through all of this.
What Type Of Mortgages Are Available For Contractors
There are many different financial products available to you. The following is a handful of examples:
This is the standard type of mortgage. Every month, you pay back some of the capital you have borrowed and some interest. At the end of the contract (usually between 20 and 30 years), you will have bought your home outright.
Buy to Let Mortgages
These mortgages are suitable for individuals who are buying a property for the purpose of renting it out, rather than living in it.
With this type of mortgage, you simply pay the interest every month. At the end of the contract, you will need to pay the capital with your own money, which you have saved elsewhere, due to past performances, this is now considered a high-risk mortgage and the condition to obtain one is more difficult than before.
First-time Buyer Mortgages
As the name suggests, these are designed for first-time buyers. We can also help you to discover whether there are any government incentives available for you.
These mortgages give you more leeway when it comes to your repayments. If you can afford to pay more than your regular amount one month, you can do so. Then, in the future, if you’re struggling another month, you can pay less or even miss a payment.
These are suitable for people who can only afford to pay down a small deposit, i.e. five percent, definitely worth considering as a contractor, you don't need to draw as much to put down as a deposit.
With this mortgage, your savings account and your mortgage are considered hand-in-hand. Your lender will take a look at how much you owe on your home loan, and then they will deduct what you have in your savings. You will then pay interest on this figure.
With these mortgages, you will typically get cashback once you agree to the deal. Sometimes, though, these deals are not as attractive as they seem, and we can help you to weed the good from the bad.
Capped Rate Mortgages
This is a variable rate mortgage. However, there is a cap on how high your rate of interest can increase, therefore, you are offered more security.
Discounted Rate Mortgages
This is a mortgage whereby the lender has given you a reduction on their basic product, which is their SVR mortgage. Yes, this is cheaper, but at the same time, you’re still going to be dealing with fluctuating rates of interest.
These mortgages move in line with a nominated interest rate, which tends to be the Bank Of England base rate.
Variable Rate Mortgages
All lenders have a Standard Variable Rate (SVR) mortgage available, which is their basic mortgage product. As the mortgage rates change, the rate you pay will fluctuate. We do not recommend these mortgages in most circumstances. If you currently have an SVR mortgage, give us a call and we will be able to find you a better alternative.
These mortgages are very popular, especially with first-time buyers. They give greater stability because your mortgage rate will be set for a period of years, typically anything from two to ten years. This means, no matter what happens to the interest rates, you know exactly what you will be paying every month.
We can help you navigate through all of these different options, ensuring you are paired with the right mortgage for your unique situation. Give us a call today for a free, no-obligation discussion.