Do Teachers Get Special Mortgages?

Teachers may not get special mortgages, but they are looked upon favourably by lenders. Teachers have stable careers and steady income. People who train to become teachers will typically stay in the profession until they retire. They may climb the ranks in their school, but they don’t tend to move into completely different roles.

There is a common misconception that there are specialist mortgage products available for different career choices. This isn’t true. Instead, what you will find is that there are lenders more accustomed to working with particular industries and professionals.

So while teachers don’t get special mortgages, some lenders will be able to maximise the benefits for teachers. Read on to discover how we can make getting a mortgage as a teacher is easier.

Can teachers get mortgages?

Teachers will typically find it simple to get a mortgage. As a full-time, salaried employee, you will easily be able to prove your income. Since a teacher’s income doesn’t fluctuate throughout the year, this makes it even easier for lenders to calculate affordability. You should be able to access a range of lending products, including:

Fixed-rate mortgages
Variable-rate mortgages
Standard variable rate mortgages
Tracker mortgages
Offset mortgages

What if I am new to teaching?

Lenders will typically want you to wait until you have a permanent contract before they grant you a mortgage. If you are on a probationary period, it’s best to wait until this has ended and your contract is permanent before applying. Most teachers under a 6 month period of induction and training which also makes up their probationary period. Once you have passed this, you will be a full-time permanent member of staff, and you will be free to apply for a mortgage.

Do I need to find a specialist lender?

As we outlined above, while there aren’t specialist mortgages, there are some specialist lenders. If you want to get a mortgage that is fine-tuned for teachers, you could approach a lender like Teacher’s Building Society. This organisation helps teachers to get on the property ladder by helping them to access borrowing and saving products.

How much deposit do I need?

As with any mortgage application, you will need to save at least 5% of the value of the property. This helps to lower the risk to the lender, so if the value of your home drops immediately after you buy it, there is some buffer before you face negative equity (when you owe more than your home is worth).

As with any mortgage, the more deposit you can offer, the better the rates you will be offered. Saving a bigger deposit, in the beginning, could help you to save money on your mortgage in the long term.

Can I use a help to buy scheme?

Absolutely! Many teachers make the most of help to buy schemes to help them save, to boost their deposit, or to make it more affordable to buy their first home. If you have already opened a help to buy ISA, you can continue to save until 2029. You could also explore shared ownership schemes and equity loan schemes.

What if I’m on a temporary contract?

If you are a temp worker or a substitute teacher, you should still be able to access the same mortgage products as permanent contract teachers. All you need to do is prove that you have a history of income in a teaching role. Provided you can show that you have worked as a temp teacher in the past, you should have no trouble securing a mortgage, even if your contract is coming to an end.

Leasehold vs Freehold: What's the Difference?

When you are planning to buy your first property, you will quickly become aware of two words: leasehold vs freehold. These descriptors will often be added to the online listing so that you know the status of the property. Before purchasing a property, it’s important that you know if you are purchasing a leasehold or a freehold because your rights and responsibilities will change depending on this key status.

What is a leasehold?

With a leasehold, you own the property but not the land that it sits on. This means that you will also pay rent to the landowner for the duration of your lease. In essence, you own the lease to the land, so you are free to sell the property in the future.

Leasehold agreements can last years, decades or even centuries. Most flats are sold as leasehold properties because it would be complicated to split up the freehold. However, in some cases (particularly in houses that are converted into flats) the residents will own a share of the freehold, which is known as ‘share of freehold’.

What is a freehold?

With a freehold, you own the property and the land it is built on. Interestingly, you will also own the aerial rights up to 500m above your property and ground rights below your property. As you own the property and the land, you will be responsible for all repairs and maintenance.

Problems with leasehold

A common problem with leasehold properties that is only now coming to light is in the way leasehold contracts are managed. One estimate says that around 12,000 leaseholders are facing ground rent fees that double every 10 years. Some new build houses were even sold as freehold, but this leasehold clause was added to their contract.

In 2019, a pledge was signed by leading property developers and freeholders agreeing to abolish these extortionate terms. There is also an investigation underway to determine if these leaseholds were mis-sold. It isn’t yet clear if those responsible will face any consequences if it is determined that they mis-sold the leaseholds.

Should I buy a leasehold?

The presence of “leasehold” on a home listing shouldn’t be enough to put you off. Provided you check the fine print and make sure that the leasehold payments are and will continue to be affordable, you should have no issues with a leasehold property. And if you are purchasing a flat, you may have no choice but to opt for a leasehold.

Another thing to look out for is the length of the leasehold. Most leaseholds will last for around 99-125 years, but some will be as long as 999 years. Anything shorter than 80 years should be avoided as it can make it difficult to remortgage the property in the future.

Your leaseholder rights

As a leaseholder, you have additional rights which are not available to freeholders. For example, communal areas will need to be managed and maintained by the landowner. Buildings insurance will also have to be provided by the landowner, so this can lower your monthly expenses.

As a leaseholder, you also have additional rights for dealing with things like noisy neighbours. There should be clauses in the leaseholder contract that outlines how noise complaints or antisocial behaviour will be dealt with.

If you are unhappy with the way something has been handled by the landowner, there are steps you can take. The first would be to speak to other residents and see if they share your feelings. You could strengthen your case to the landowner if multiple residents complain about the same thing. If this does not help you to solve your issues with the landowner, you can try mediation and then apply to tribunal if you are unhappy with the outcome.

Mortgage Advantages and Disadvantages

Getting on the property ladder is a very common life goal. Despite this, not everyone really understands the role of a mortgage in purchasing a home. Taking on a mortgage is a big responsibility, and with it comes a range of advantages and disadvantages to consider.

If you’re thinking about purchasing a home with the help of a mortgage, make sure you have considered the following before taking the first steps. If you’re ready to start your journey to homeownership, working with Niche Mortgage Info can help you to access the best possible deals.

What is a mortgage?

Buying a home is a considerable investment, and most people don’t have this kind of money just lying around. This is where banks and building societies come in. A bank provides the capital upfront, under the agreement that you will pay back the loan, with interest, usually over a period of around 25-40 years.

Who can get a mortgage?

The decision to grant a borrower a mortgage is made by underwriters. They will assess the risk of lending to a person on a case-by-case basis. Each lender will have their own requirements to determine who is able to secure a mortgage. In general, lenders want to see that you have a steady and reliable income, good money management skills and no adverse credit history. That said, even those with trouble in the past can often find a lender willing to work with them.

Advantages of a mortgage

A mortgage makes homeownership possible. Not many people have £200,000 just lying around, so unless you have a trust fund or rich relatives, a mortgage might be your only option for homeownership. Owning your own home gives you the power to make changes to a property and really make it your own. You can invest in the property, adding an extension or improving the interior and this can add value to the property.
You can stop paying rent. One of the biggest perks of owning your own home is that you will no longer be trapped in a rental cycle. This means your monthly housing expenses will be going towards something that you own, rather than paying your landlord’s mortgage.
A mortgage is a kind of investment. A mortgage is an investment, and a home is an asset. While your monthly mortgage payments might seem similar to rental payments, you’re actually directing your income towards a kind of investment fund. This can be a viable retirement investment, particularly if your home increases in value and you are then able to sell it and downsize to a smaller property. If you sell a property before you have paid the mortgage in full, you will only get back your portion of the equity.

Disadvantages of a mortgage

You will pay back a lot more than you borrowed. This is a simple fact of mortgages. While you can shop around for a better deal and remortgage throughout the lifetime of your agreement, the simple fact is that you will pay back more than you borrowed. This is simply the price we agree to pay in order to be able to purchase a home. When choosing your mortgage product, make sure that you take into consideration all of the fees to make sure you’re getting a good deal.
Your mortgage payments could change. If you choose a variable mortgage product, your payments could be less predictable than rental payments would be. People choose this type of mortgage as there is a chance they could see their payments decrease. But it is just as likely that their payments could increase. If you want some security that your payments won’t change, you should explore the option of a fixed mortgage. This will typically be fixed for a number of years, so you will have more certainty with your finances.
You could end up with negative equity. If the value of your home drops dramatically, you could be in a situation where you owe more than the home is worth. This means that you will be unable to sell the home without still owing the lender more money. This is what happened across the United States during the 2008 financial crash. It resulted in some homeowners simply abandoning their homes rather than continuing to make payments.
You need a healthy deposit. Mortgages that cover 100% of the value of the property are a thing of the past. This means that you’ll need to be able to save money for a deposit. Saving up a large sum of money might seem impossible, but there are ways to make this easier. Using a help to buy scheme can allow you to supplement your deposit with a loan from the Government. This means you could buy a home with a 25% deposit despite only saving 5% of the deposit.

Can Foster Carers Get a Mortgage?

Being a foster carer is a challenging but rewarding role. Opening your home to children in need is not just an altruistic act. Foster carers are paid an allowance to cover the cost of caring for the child in addition to a personal stipend. Foster carers also undergo extensive on-the-job training. So in many ways, it can be considered a career. As a foster carer, you will enjoy tax benefits which can help to boost your income. But what about other investment options? For example, can foster carers get a mortgage?

You may be pleased to learn that it is possible to get a mortgage as a foster carer. You will be treated as any other self-employed person. As it is typically harder to get a mortgage when you’re self-employed, there may be additional steps you need to take. But the good news is that you can get a mortgage as a foster carer.

Do I need a specialist foster carer mortgage?

There isn’t a specialist foster carer mortgage, but there are lenders who are more accustomed to working with foster carers. Looking for a lender that understands your unique situation is one way to ensure that you can sign on the dotted line for your dream home.

The most important thing to look for is a mortgage provider that will consider 100% of your earnings from foster care. Some lenders will only consider a smaller percentage, which means that you won’t be able to borrow as much. This means you will either have to set your sights on a cheaper property or save a larger deposit.

How do I get a mortgage as a foster carer?

If you are a foster carer and you want to get on the property ladder, move house, or remortgage your current home, you will need to find the right lender for your needs.

Foster carers are considered to be self-employed for tax reasons, which means that you file your own self-assessment tax return. This tax return will be used to calculate affordability, and you may need multiple years of tax returns to be able to apply.

This all varies depending on the lender. Many lenders only want to see that you have been fostering for a minimum of 6 consecutive months. This can become complicated if you are a respite foster carer, or if you are a short term foster carer. This is why it is vital to speak to a lender that understands the foster care sector.

How much deposit will I need?

You will need a minimum of 5% of the value of the property as a deposit if this is your first home. If you are purchasing a buy-to-let property, you may need as much as 40% of the value of the home as a deposit.

Unfortunately, banks will no longer issue mortgages that are 100% of the value of the property. You will also find that a smaller deposit will lead to higher fees. This means the more deposit you can provide, the better mortgage deals you will be able to access.

Can I use the help to buy scheme?

If this is your first home, you can use an equity loan to boost your deposit. The Government will top up your 5% deposit to 25%, allowing you to buy a new home with a 75% mortgage. You won’t have to pay fees on the 20% loan for the first 5 years of living in your new home.

You could also explore shared equity schemes which will allow you to buy a percentage of a home and pay rent on the remaining share. You can then purchase further shares in the future when you have more money to spare.

How Loan to Value (LTV) Ratio Affects Your Mortgage

Those applying for a mortgage for the first time will soon discover the abbreviation LTV. This stands for loan to value, and it is a calculation of the lending risk to financial institutions. When an individual applies for a mortgage, they will be asked to provide a deposit. This means that they won’t be applying to borrow the full value of the property, but instead, they are applying to borrow a percentage of the value of the property.

What is the LTV ratio and why is it important to lenders?

This percentage is known as the loan to value, or LTV, and it is used by lenders to determine the amount of risk and therefore the interest rate. A borrower with a higher risk factor will be subject to a higher interest rate. Loans with a higher level of risk are always subject to higher interest rates.

If you were unable to keep up with your mortgage payments and your home lost value, the bank may not be able to recoup the entire amount borrowed. This is what we mean when we talk about risk.

Lenders will look at the LTV requested as part of their affordability checks. During times of market uncertainty, lenders are less likely to grant high risk, high LTV loans. So if you’re thinking about getting on the property ladder while there is a slump in the housing market, you may need to save a larger deposit to be accepted.

When the market is booming, lenders are more likely to be generous with their loan approvals, so a higher LTV might not be an issue. In this situation, you can still expect to pay higher rates for your mortgage product, as the bank will still be taking on a high-risk loan.

Is higher or lower LTV better?

A high LTV means that you are borrowing a high percentage of the property value. This means you have a small deposit, and that the risk to the lender is higher. This type of loan would be subject to high-interest rates.

A low LTV means that you are borrowing a low percentage of the property value because you have a large deposit. This would be lower risk to the lender and you should, therefore, have access to the best interest rates.

LTV In Practice

Imagine you are purchasing a £200,000 home. Offering a deposit of £10,000 would mean applying for an LTV of 95%. This could be considered high, and therefore subject to high-interest rates.

With a deposit of £40,000, this could mean applying for an LTV of 80%. This would be considered low, and you would, therefore, be able to access the best rates.

While you would pay a larger deposit upfront, you would be able to access lower interest rates which would lower your monthly payments, allow you to pay it off soon, and reduce the overall amount that you have to repay. This is why it is considered a good thing to apply for a low LTV.

What is the maximum LTV on a mortgage?

The maximum LTV many lenders will allow is 95%. In the past, it was possible to get a 100% LTV mortgage. This would mean that no deposit is required and the bank would take on 100% of the risk. These have been largely phased out since the 2008 financial crash.

The 100% mortgage might still be available if you can ask a family member to offer their property as security against the loan. This means that if you fail to make your mortgage payments, the lender would be able to seize your guarantor’s home to make up any shortfall.

Most lenders will only offer 95% LTV, which means you will need to provide a minimum of 5% of the value of the home. There are options to boost your deposit, including a "help to buy" loan which would increase your 5% deposit to 20%. You would take out a loan for the remaining 15% and pay this back alongside your mortgage payments.

How can I lower my LTV?

There are two main ways you can lower your LTV to access better mortgage rates.

The first option is to save more money so that you can offer a bigger deposit. For example, if you are purchasing a £95,000 property, you would need £4,750 for a 95% LTV and £9,500 for a 90% LTV. Boosting your deposit savings through a "help to buy" scheme is one way that you could increase your deposit and lower your LTV.
The second option is to purchase a less expensive home in the beginning. For example, a £10,000 deposit would only be a 5% deposit for a £200,000 home, but it would be a 10% deposit for a £100,000 property. Purchasing and renovating a less expensive home and then moving to a larger property when you have increased your equity

How to Get a Mortgage When You’re Self-Employed

You may have heard rumours that getting a mortgage when you’re self-employed is more difficult than it is for full-time salaried workers. While this may be true to some extent, but once you have jumped through the right hoops, you will have access to the same lending products as any other individual.

Mortgages for the self-employed are different because lenders can’t easily confirm your earnings. Since the entire mortgage approval process is about calculating the risk to the lender, self-employed earnings make it more difficult to assess.

With a full-time salaried employee, lenders can see their contract, payslips and bank statements as proof of income. With a self-employed person, their income may be more sporadic, increasing one month and falling the next. It’s also common for the self-employed to have income from more than one source. This makes things more difficult to assess for the lender.

If you’re self-employed and want to make your mortgage application easier, read on to discover the steps you need to make to get on the property ladder.

1. Get your accounts in order

Messy and complicated accounts is a surefire way to make lenders nervous. Split your personal and business spending by accounts, ensuring that you never use your business account for personal reasons, and vice versa. This will help lenders to get a more accurate picture of your spending habits.

2. File your tax return on time

Lenders will ask to see your SA302 statement as proof of income. This is a document provided by HMRC after you file your taxes that outlines your income and tax liability. It is the best possible proof of income you can provide and this is what will be used to determine affordability. If you are late filing your taxes, this will complicate the mortgage application process and could make you appear to be an unreliable borrower.

3. Stop reducing your tax liability

There are plenty of perfectly legal ways you can reduce your tax liability as a self-employed worker. While this might be good news for your tax bill, it can deliver a huge blow to your mortgage application. When you reduce your tax liability, you are essentially telling HMRC that you don’t earn as much money. But when lenders are looking at this figure to determine how much you can borrow, this can be disastrous and lead the bank to assume your freelance business is not as profitable as it really is. Speak to an accountant if you need help and guidance to get your accounts in order before your mortgage application.

4. Start saving a deposit

You can’t get on the property ladder without a deposit. And when you’re self-employed, you should aim to save as much as possible for your deposit. Your deposit helps to lower your LTV, or loan to value, which helps to lower the risk to the lender. This will allow you to access better mortgage products.

5. Explore help to buy schemes

The self-employed are also eligible for help to buy schemes, so you should check if there are any relevant to your circumstances. The help to buy equity loan scheme could allow you to boost a 5% deposit to a 25% deposit. Shared ownership is also a great way to get on the property ladder and start building your future. Even if you don’t own the full property, it’s a great way to start building equity.

6. Find a mortgage broker

Navigating the mortgage market alone is difficult enough when you’re a full-time salaried worker. When you’re self-employed, some of the big-name banks won’t even consider your application. This is why working with a mortgage broker can be so helpful. A mortgage broker will be able to build a profile of you and then match this to suitable lenders. While you might have to pay broker fees, you could save a lot of money in the long run by accessing a better lending product.

7. Check your credit score

With an unconventional income, one way that lenders can determine if you are a responsible borrower is by looking at your credit score. Your credit history is vital to securing a mortgage, so you should check that yours is up to date and free from errors before you apply. Make sure you don’t apply for any lines of credit at least 3 months before your mortgage application. An accepted application for credit will raise red flags just as much as a declined application.

8. Build evidence of future contracts

Depending on the kind of work you do, you might be able to build an attractive application by highlighting any future contracts you have lined up. Retained contracts will also have a similar impact on your application. This will allow you to show a record of consistent earnings, but also a bright future of potential earnings.

9. Get your spending in check

As part of the application process, lenders will often ask to see 6 months of bank statements. This will help them to get a better idea of your spending habits, so you must represent yourself in the best possible light. Some lenders will automatically reject your application if they see evidence of gambling on your bank statements. And some will call your application into question if your actual spending doesn’t match what you have stated on your application.

10. Get on the electoral roll

It might not be election season, but you should still make sure your address is up to date on the electoral roll. You should be able to check this when you check your credit report. The electoral roll is the simplest way for lenders to confirm your address. Without this essential step, lenders may have to resort to confirming your address through other avenues which can delay the application process unnecessarily. To avoid this fate, simply head to the HMRC website and add your details to the electoral roll. This may take up to eight weeks to show on your credit report, so make sure you do this step well in advance.

The Mortgage Underwriting Process

Applying for a mortgage for the first time is a steep learning curve. You will be introduced to many new concepts and terms that may make the whole process feel a lot more daunting. The mortgage underwriting process is one such example of a complex and opaque field.

In this guide, we will break down the underwriting process for the typical mortgage application. We’ll outline what the process is, who is responsible for it, the steps in the process and the things you can do to increase your chances of being accepted.

What is underwriting?

Every financial application will undergo a process known as underwriting. This process calculates the level of risk for the lender so that they can determine how much interest should be charged on the loan. It also helps the lender decide if they are happy to take on the risk.

If the risk is considered to be too high, your application may be rejected. If the risk is high but still acceptable, you may be offered a loan at a high rate of interest. And if the risk is low and you are very likely to be able to pay the loan back in full, you will be offered a low-interest rate.

What is an underwriter and what role do they play in the mortgage process?

The underwriting process is carried out by a mortgage underwriter. These are highly trained individuals who work for mortgage companies. They are tasked with assessing the risk attached to each lending application, whether it is for a mortgage or a personal loan.

The mortgage process needs underwriters to help determine the interest rate you will pay on your mortgage. The mortgage underwriter will also play a role in determining the affordability of a loan and deciding how much you can borrow.

Why do banks use underwriters?

Banks use underwriters and the underwriting process to manage their risk. Every financial decision comes with a certain level of risk. In the mortgage industry, lenders are trying to manage the risk that a borrower might be unable to keep up with the payments.

If the lender is forced to repossess the property, there is always the chance that the property will sell for less than it was originally purchased for. This would leave the lender out of pocket, as they would not be able to get their full investment back.

When does the underwriting process happen?

When your mortgage application reaches the underwriting stage, there is still a chance it could be rejected. The underwriting stage happens after you have gone through the soft credit check and the scorecard steps.

At this stage, the lender brings together all of the information they have about you and the property to determine if lending you the money to buy the property is worth the risk.

After the underwriting process is completed, you will be given a final decision on your mortgage application. This can be an incredibly stressful time for applicants, so it helps to understand the steps in the process so you can be prepared.

What are the steps in the underwriting process?

Understanding the steps in the underwriting process can help you to ensure your application succeeds. When you understand what the lender is looking for in advance, it can be easier to pre-empt any potential problems.

Remember that the underwriting process is not just about assessing risk to the lender, it’s also about making sure that the mortgage is affordable and responsible. The validity of your documents will be scrutinised and any information you have provided about your income, expenses and expenditure will be put under the spotlight.

Most mortgage providers in the UK will follow the same underwriting process which can be broken down into the following sections:

Policy rules. Every lender will have their old policy rules which your application must satisfy. This can include things like your age, your credit history, LTV and your legal status. Your mortgage broker or advisor should help you to understand if you meet all of these requirements before you submit your application.
Credit reporting. The mortgage underwriting will look at your credit history to determine if you are likely to be able to repay your mortgage. They will use statistical models to compare your application to other applications in the past.
Fraud checks. These checks ensure that you aren’t laundering money or lying about your identity. They will also look at the source of your deposit, so you may have to provide more details. If you were given your deposit as a gift, for example, the underwriter may need more details to satisfy this section of the application.
Affordability. Every lender will use a different calculation for affordability. In general, this calculation will take into consideration the information that is gathered during the underwriting process.

For example, the underwriter will look at your current financial situation, ongoing debts, average expenditure and potential for increases to your income. They will then determine how much they are willing to lend you based on this information.

Many lenders will calculate affordability based on a multiple of your annual salary, typically 4-5x your annual income. For if you’re earning £35,000 per year, you might be offered between £140,000 to £175,000.

Property valuation. The final part of the puzzle is the property valuation. Lenders will carry out their valuation to make sure you aren’t paying too much. They will also look at things like the age and condition of the property and the construction materials to make sure the property won’t fall in value unnecessarily.

How long does this process take?

There isn’t a fixed time for the underwriting process. It will vary depending on many factors including:

The details of your application. If they require further information, this can slow things down.
The experience level of the mortgage underwriter. A new underwriter might be slower to work through the checks.
The number of applications. During busy times of the year, such as over Christmas and New Year, office closures might lead to delays in your application. Spring is also a busy time for applications so you may have to wait longer.

What might cause an application to be rejected?

There are a few different reasons that a mortgage underwriter will reject your application. These can typically be put into two categories. Either your situation changed while the application process was taking place, or the underwriter discovered something in your application which makes you high risk.

If you have been made redundant while you are waiting for a decision, this could impact your ability to repay your mortgage. In this situation, it might be wise to wait until your finances improve before you move forward with another application.

If your mortgage is rejected because the underwriter has unearthed something which makes you a high-risk borrower, this will need to be addressed before you submit another application. The underwriter may discover a discrepancy between your stated earnings and what is coming into your account every month. Or they may have unearthed an undeclared debt which changes the risk level for the lender.

In some cases, it is items on your bank statement which can cause an underwriter to reject your application. Gambling websites appearing on your bank statement is a common reason for a mortgage application to be rejected. In some cases, applications have even been rejected for having foul language in payment references.

While it might seem funny to send money owed to a friend with a swear word in the payment reference, this could impact your ability to secure a mortgage.

How can I increase my chances of being accepted?

Working with a broker can help you to avoid some of the most common reasons that applications get rejected. A broker will be able to assess your finances and your current situation and determine the likelihood that your application will be accepted. If there are any issues with your application, these can be cleaned up before it gets to the underwriting stage.

A rejected application can be a huge blow to your confidence and it might leave you wondering if you will ever be able to get a mortgage. If your application is rejected, you should find out why the mortgage was declined. Lenders will usually tell you the reason, but you may need to chase this. In some cases, you simply need to increase your deposit or reduce your other debts to make your application lower risk.

If a mortgage application is rejected at the soft check phase, this is unlikely to show up on your credit report. But an application rejected by an underwriter will show up on your credit report. If this happens, it’s a good idea to wait a while before submitting another application.

The best way to increase your chances of being accepted while also making the application process less stressful is to work with a broker. This is particularly true for those with unique financial situations such as business owners and the self-employed.

Can you get a mortgage on a temporary work contract?

Can you get a mortgage on a temporary work contract?

Fixed-term contract mortgage, do they exist? Getting a mortgage on a temporary work contract? Well yes. When applying for a mortgage, lenders want to ensure that you will be able to afford the repayments for the full term of the mortgage. Those in full-time employment rarely have an issue proving their income, but for those on temporary contract work, it can be more difficult to prove that you will be able to afford the repayments.

While most lenders will turn away applicants on temporary work contracts, there are some who will look past this aspect of your application and see the bigger picture. In most cases, they will consider your application based on a number of factors. In the following article, we will try to unpack some of the myths surrounding temporary contract worker mortgages.

The four different types of temporary contact

To make things more confusing, there are four different ways that temporary contracts can be categorised. It’s not just a case of having a permanent or a temporary contract, there are different ways that mortgage providers view this type of work. Some are more favourable than others.

1. Fixed term contracts

If you have a fixed-term contract, you will usually have a fixed start and end date for your employment. In other cases, your contract might come to an end when you complete a specific project. In some industries, this type of contract is the norm, so a lender would simply want to see past evidence of earnings.

2. Temp agency workers

Like fixed-term contracts, temp workers don’t expect their employment status to become permanent. However, there is no reason to believe that you won’t enjoy steady income as a temp worker. In many cases, the type of work you do as a temp worker will be crucial in the decision making process.

3. Short-term contracts

If you are on a short-term contract, such as maternity leave cover, you will be treated much in the same way as any other temporary contract worker. For example, if you moved from a full-time job into a short-term contract and you have no history of career gaps, there is no reason to believe your income won’t be steady. As above, the type of work often impacts the final decision.

4. Probationary period

Most companies offer a probationary period of around 3-6 months at the start of a new job before the offer is made permanent. In some cases, your probationary period could be as long as one year.

During this time, the terms of employment are quite different. The notice period is usually reduced from one month to one week, to allow both employer and employee to decide if the opportunity is right for them.

Some lenders will turn don’t applications from those in their probationary period, but it isn’t an issue for others. If you have a short probationary period, it may be easier to wait until the offer is made permanent.

So, can I get a mortgage on a temporary work contract?

The short answer is, yes! Many lenders are willing to work with those on temporary contracts. If you can provide evidence of past earnings, most lenders won’t see it as a problem. If you are unsure if your employment status will impact your ability to secure a mortgage, get in touch with one of our specialist mortgage brokers. They will be able to advise you on the best steps to take to increase your chances of getting a mortgage.

Why don’t some lenders like temporary contracts?

Lenders are always concerned with ensuring you will be able to afford the mortgage repayments for the full term. With temporary contracts, some lenders will be concerned that your income might dry up when your contract comes to an end. It isn’t only your contract type that lenders will focus on. They will also look at…

The type of work you do

Highly skilled workers will be seen as far more favourable than low skilled, manual workers. For example, many doctors and solicitors will work on the basis of short-term contracts. Locum doctors, for example, command higher earnings for short-term work. The highly specialised nature of their work suggests that they will always be able to find a new short-term contract.

In contrast, a warehouse worker or seasonal worker might struggle to demonstrate that their income is sustainable. The lower income levels might also leave lenders with questions about their application.

The length of your contract

Lenders will not only look at the overall length of your contract. They will also how long you have left on your contract. If you are nearing the end of a 3-month contract, this could be less favourable than being at the start of a 12-month contract.

If the contract has been renewed in the past

When your contract has already been renewed once, this is a good indicator to lenders. Even if you can offer confirmation from your current employer that they intend to renew your contract, this can help to bolster your application.

Earning and employment history

If you have a solid history of employment and can show a steady stream of income, your employment status will be less of an issue. With higher earnings, even an employment gap can be easily explained away.

Some contract workers like to work for 11 months and then take a one-month break before starting a new job. If their earnings for those 1 months are enough to support them for the extra month, this is unlikely to be an issue for lenders. Some lenders don’t like to see any employment gaps, so it’s always worth confirming with a mortgage broker before submitting an application.

How much can I borrow?

If you pass the affordability criteria, you will have access to the same mortgages as any other permanent contract worker. Most lenders will have a maximum loan to value (LTV) of 95%, meaning you will still need to secure a 5% deposit. Most lenders will allow you to borrow up to 5 times your income, just like any other borrower.

How can I increase my chances of being accepted?

If you are concerned that your employment type will impact your ability to secure a mortgage, get in touch with our friendly team today. We can help you navigate the many mortgage choices available to you. We can also advise on the best ways to increase your likelihood of being accepted for a mortgage.

Improving your credit score through responsible borrowing is a great way to increase your chances of getting approved for a mortgage. You should also keep employment gaps to a minimum and focus on saving a large deposit.

You can also read our complete guide to securing a mortgage while on a temporary contract here.

20 questions. How do mortgages work?

How do mortgages work?

A mortgage is a loan used to buy a house or property. You will pay back the loan over a significant period of time, in addition to interest on the loan. You will typically need to provide a deposit, which will be a percentage of the total value of the house. Most lenders will request between 5-25% deposit, depending on your circumstances.

Once you have secured a mortgage, you will be able to move into the house. However, you will not own the house until the mortgage has been paid off in full. You will make monthly payments to pay off your mortgage, usually over multiple years. The typical mortgage term is 25 years. Some lenders will allow you to borrow over a shorter period of time if you expect to be able to pay it off sooner. And some lenders will allow you to take longer to reduce your monthly payments. If you take a mortgage over a longer period, your total interest payments will be much higher.

In addition to paying off your mortgage, you will also pay interest on the amount borrowed. When choosing a mortgage, you will have to choose between a fixed rate or variable interest rate mortgage. If you choose a fixed rate mortgage, your mortgage payments will be the same for the duration of the agreement. If you choose a variable rate mortgage, your payments will be linked to the Bank of England base rate, or will be controlled by your lender. This means your mortgage repayments could increase or decrease every month or every year.

In the early years of paying back your mortgage, a larger portion goes towards paying off the interest and a small portion goes towards paying off the capital. As your debt decreases, you will start to pay off more of the capital every month. While you are able to live in the house and even sell it for the duration of the mortgage, you will not own it completely until your mortgage payments are complete.

Some mortgages will allow you to “port” them to another property, which means you could move to a house of the same or lesser value without changing your mortgage payments. If you move to a more expensive home, you could be asked to pay a higher interest rate on the top up amount. For mortgage preparation please see our infographic guide.

How do buy to let mortgages work?

A buy to let mortgage is a special type of mortgage for landlords who want to buy a property solely with the aim of renting it out. While there are some similarities between a residential mortgage and a buy to let mortgage, there are some key differences.

The biggest difference that borrowers will notice is that a buy to let mortgage will require a larger deposit. While you might be able to secure a residential mortgage with a deposit as low as 5%, with a buy-to-let mortgage, the deposit will need to be much larger. The interest rates and fees for a buy to let mortgage will also be much higher, so you will need to factor this into your calculations. And finally, you will not be permitted to live in your own buy to let property. There are also strict rules about letting your property to close family members.

The minimum deposit for a buy to let mortgage is usually around 25%. But it can be as high as 20-40% depending on the lender. Most buy to let mortgages are interest-only, which means you only make interest payments for the lifetime of the mortgage. At the end, you will be expected to pay the mortgage in full.

Instead of looking at your income to determine how much you can afford to borrow, lenders will look at how much rental income you can expect to receive. You will typically need the rental income to be around 25-30% above your mortgage payments. This will allow you to factor in things like letting agent fees and repairs or upgrades to the property.

Many of the big banks offer buy to let mortgages, or you can work with a specialist lender to find the best deal.

How do lifetime mortgages work?

A lifetime mortgage is a loan which is secured against your home which does not need to be repaid until you pass away or move into long-term residential care. This can allow you to free up the wealth from your home without having to move house or downsize.

A lifetime mortgage allows you to borrow money against your home. You can also protect a portion of the value of your home as an inheritance for your family. You get to stay in your home without paying rent and will still be responsible for maintenance.

You will pay interest on the amount borrowed, but this can be added to the total loan amount. When you pass away or move into residential care, your home is sold and the amount received from the sale of your property is used to pay back the loan and any outstanding interest.

Anything that is left over after paying back your loan and interest will be passed to your beneficiaries. And if your estate is able to pay back the loan without selling the property, this is also available as an option.

In some cases, there might not be enough money to pay back the loan and so your beneficiaries would have to repay anything above the loan value from your estate. To protect against this, many lifetime mortgages offer a no-negative equity guarantee. This will ensure your beneficiaries don’t have to pay back more than your home is worth.

How do offset mortgages work?

An offset mortgage is linked to your savings account. It allows you to balance your savings against the amount you have left to pay on your mortgage. It can allow you to reduce the amount of interest you pay.

With an offset account, you won’t earn interest on your savings. But you will save money on your mortgage interest. Since most people will pay more on their mortgage interest than they earn in interest on their savings, this type of mortgage can save you money.

You can still take money out of your savings account, but if you do so, it will no longer be offset against your mortgage. This means that the amount of interest you owe will go up and your monthly mortgage payments will increase. You will need to keep a minimum amount in your savings account. It’s important to check the minimum amount before choosing your offset mortgage deal.

An offset mortgage will also allow you to make overpayments and pay off your mortgage faster. To make overpayments on an offset mortgage, you would have to agree to still pay the interest, even though it is offset. This would mean you would pay back your loan faster without having to part with your savings; your savings would still be available when you need it.

An alternative to an offset mortgage would be to put down a larger deposit to help lower your fees and interest rates. However, using an offset mortgage can give you greater financial freedom as you will always have access to your savings. Without this option, the only way to access that money again would be to sell your home.

How do interest only mortgages work?

An interest-only mortgage is a type of mortgage where you only pay off the interest and not the capital loan amount. At the end of the loan term, you will have to pay back the loan amount in full. When you are only paying the interest, your monthly payments will be much lower. It’s important that you have a plan in place for saving or investing so that you can pay back the loan in full at the end.

An interest only mortgage will typically be more expensive than a repayment mortgage. This is because as you chip away at your mortgage debt, the monthly interest payments will decrease. But if you do not reduce the size of the original loan for the entire life of the mortgage, the interest payments will remain high.

Interest only mortgages are difficult to find as many lenders stopped offering them after the 2008 financial crash. The requirements for securing an interest only mortgage are much stricter today. Lenders will often expect to see a much larger deposit, usually around 50% of the value of the property. They may also ask to see evidence of an investment vehicle that will allow you to pay back the loan in full.

Your income may also be put under greater scrutiny for an interest only mortgage and some lenders will only consider applications from high income individuals earning in excess of £100,000 per year. See Which? podcast that is useful.

How do repayment mortgages work?

A repayment mortgage is the most popular type of mortgage. There are two main types of mortgages, interest-only and repayment. With a repayment mortgage, you will pay back the capital on the loan in addition to interest payments. With an interest-only mortgage, you will only pay back the interest and then pay the full value of the loan at the end of the repayment period.

As you are paying back the capital amount in addition to the interest, this type of mortgage will be more expensive in the short-term. Your monthly mortgage payments will be higher than if you were to have an interest-only repayment plan. However, in the long-term, a repayment mortgage will work out cheaper.

At the start of the mortgage repayment period, you will be paying more interest and less towards the capital. As time goes on, the amount of debt is reduced and you will start to make bigger monthly payments towards the capital loan.

With a £200,000 mortgage, you would pay £1,002 per month assuming you have a 25 year repayment plan and an interest rate of 3.5%. This would mean you would pay £100,477 in interest, with a total repayment of £300,477. For an interest-only mortgage, you would pay £584 per month but a total of £375,161, of which £175,161 would be interest payments. Follow here for some more in-depth information,

How do joint mortgages work?

A joint mortgage is where you apply for a mortgage with another person, usually a partner, friend or relative. You will both be liable for the mortgage payments and you will have an equal claim to the property. When submitting a joint mortgage application, both parties will need to meet the lending criteria. This can increase the amount of money you are able to borrow as both incomes will be considered.

In the event that one person is unable to pay their share of the mortgage payments, the other person will have to pay the full amount. When taking out a joint mortgage, it is important to choose the correct legal entity. You will have to choose between being joint tenants or tenants in common.

A joint tenants agreement would be most appropriate for spouses or those in a long-term relationship. You would have equal rights to the property, you would be able to claim an equal share of the profit from the sale, and the other party would automatically inherit the property if the other person passed away.

With a “tenants in common” agreement, each person would have an agreed share of the property. This makes it ideal for friends sharing a property, or for relatives purchasing a property together. Rather than the other party or parties inheriting the property in the event one of the people named on the mortgage passes away, each person can decide who will inherit their share in their will. For Joint mortgages for the self-employed see our past post.

How do interest only mortgages work uk?

In the UK, interest only mortgages are becoming less popular. There are still many people on an interest only mortgage, but the pressure to pay the full capital amount on an interest only mortgage can prove to be too much for some people.

With a repayment mortgage, the monthly mortgage payments contribute to reducing the capital loan amount while also paying the interest payments. At the start of the loan, a greater portion of the repayment will go towards paying the interest. With an interest only mortgage, the borrower only pays back the interest every month. At the end of their mortgage period, they will be expected to pay back the value of the property in full.

With lower monthly payments, it is expected that the borrower will put money towards a repayment vehicle to ensure they have the money to pay back the loan in full at the end of the repayment period.

Savings might be effective, but not everyone will be able to put away enough money to repay their mortgage in full at the end of the term. Investments can also be problematic as there are no guarantees. It also requires the borrower to ensure they are investing enough money to cover the mortgage amount. At the end of the mortgage, if you are unable to pay back the full value of the loan, you may need to remortgage or sell your property.

How do commercial mortgages work?

If you are a business owner looking to manage the costs of renting premises, a commercial mortgage could help. Similar to a residential mortgage, a commercial mortgage involves borrowing money from a lender in order to purchase property or land. Although the commercial mortgage market might be smaller than the residential mortgage market, the value is significantly higher. Commercial mortgages might include:

Purchasing business premises
Securing land for development
Purchasing owner-occupied premises
Starting and expanding a buy-to-let portfolio

A commercial mortgage is used for more than just securing a property. Many business owners will view a commercial mortgage as another source of business funding. It can help businesses to free up capital and even protect their business against future rent rises.

A commercial mortgage application will look at the borrower’s credit history in addition to the business accounts. Commercial mortgages will also require a much larger deposit up front, usually around 40% of the property value.

For start-up companies which are asset rich but cash poor, lenders may accept other assets as a form of security. This could mean using a residential property as security against a commercial mortgage.

As with any kind of lending, it is important to shop around and consider the full implications of any borrowing decision. Commercial mortgage terms typically last between 5 and 40 years, so it is a significant undertaking.

How do guarantor mortgages work?

A guarantor mortgage can help those who might be unable to secure a mortgage on their own to get on the property ladder. If a person has a poor credit rating or they don’t meet the lending criteria, then a guarantor mortgage can help.

With a guarantor mortgage, a person will co-sign on a mortgage with the understanding that they will have to make the payments if the borrower is unable to do so. This can give lenders some reassurance that the mortgage will still be paid, even if the borrower runs into short-term problems.

The guarantor will agree to continue with the agreement until the loan to value (LTV) has reached a certain amount. After this point, the borrower will be solely responsible for meeting the mortgage payments. The guarantor does not have any legal claim to the home, so it is important to understand the agreement that is taking place.

If the guarantor would like to control a share of the property then a “tenants in common” joint mortgage would be more appropriate. This would allow the guarantor and the borrower to agree to a percentage split of the property. Other ways to help a person purchase a house include a family offset mortgage. This would allow a parent or guardian to use their savings to offset the interest on a mortgage and lower the monthly payments for the borrower.

How do banks work out mortgages?

There are a number of different factors that banks use to determine how much a person can borrow and how much they will have to pay back. In the past, the amount you could borrow was a simple calculation based on your income. It would typically be around 5 times your annual income. Today, mortgage providers will typically not lend more than 4.5 times your annual income. This calculator from money saving expert is useful.

Lenders will also look at other factors that could impact your ability to pay back your mortgage every month. When applying for a mortgage, lenders will take a close look at your finances to determine if they will grant you a mortgage. They will start with your income and outgoings to determine if you would be able to meet the mortgage payments.

They will also question if you would be able to continue to meet your mortgage payments if rates were to rise or if your circumstances were to change. For example, if you are nearing retirement, they may ask to see proof of your retirement income to make sure that you will still be able to meet your obligations. They may also question what would happen to your finances if you were to be made redundant, have a child, or take a career break.

When it comes to calculating your rates and fees, these will largely depend on your deposit and your credit rating. By providing a large deposit, you will be applying for a smaller loan in proportion to the value of the property. This means that your interest payments would be lower over the lifetime of the loan.

How do adjustable rate mortgages work?

When applying for a mortgage, you will need to choose between an adjustable rate mortgage and a fixed rate mortgage. An adjustable rate mortgage is fixed to the Bank of England interest rates. This means that your mortgage repayments will vary throughout the lifetime of the mortgage.

With an adjustable rate mortgage, you may find that you pay less than you originally planned if the Bank of England base rate falls during the lifetime of your mortgage. But it could also be more expensive if the interest rate increases. It’s important to factor in potential changes to the interest rates when submitting your application.

At the start of the loan, the interest rate will often be fixed for a specific period of time. After this time has passed, the interest rate on the remaining loan will reset periodically. This interest rate will usually reset once a year, or it could reset monthly, meaning that your mortgage payments could change every month.

Adjustable rate mortgage caps may be in place to ensure that your interest rates don’t go above a certain amount. This can help to offer some protection, but it is still important to consider the financial implications of a significant change in your monthly mortgage payments. See some further pros and cons from The Balance.

How do variable rate mortgages work?

When choosing your mortgage product, the biggest decision you will have to make is between a fixed rate and a variable rate mortgage. A fixed rate mortgage will allow you to fix your mortgage payments so that you know you will always pay the same amount. A variable rate mortgage will change depending on the Bank of England’s base rate.

While this can mean that your mortgage payments could increase, there is also the chance they could go down. This can be a tempting prospect for many prospective home owners as it means that they won’t have to pay more than they need to in interest payments.

There are two main types of variable rate mortgages, the standard variable rate and the tracker rate. A standard variable rate mortgage is determined by your lender. While it is often linked to the Bank of England base rate, lenders also have the option to tweak this amount without linking it to the base rate. A tracker rate mortgage follows the movements of the Bank of England base rate exactly.

A tracker rate mortgage will have an index and a margin. The Bank of England base rate will be the index while there will also be a fixed margin on top of this. This means that your interest payments may be 2% above the Bank of England base rate. It’s important to consider the impact a change in your interest rates and mortgage repayments could make to your monthly finances. You can see Money Facts for some more detailed information.

How do mortgages work when moving house?

If you are selling your current mortgaged property and buying another property, you may be wondering what will happen to your mortgage. When you sell a mortgage property and buy a new one, your lender will use the money from the sale of your current home to pay off the existing mortgage and begin a new mortgage agreement on the new property.

Many lenders will allow you to simply “port” the old mortgage to the new property, allowing you to keep the same mortgage agreement and monthly payments in place. Not all mortgages are portable, so you will need to check your loan documentation. If your loan isn’t portable, you will effectively have to apply for a new mortgage on the property. Early repayment penalties may apply, but this will depend on your mortgage terms. This will typically be a percentage of your outstanding debt.

When moving to a new home, you will have to think about the value of the new home. If your new home is more expensive, the rates on the additional debt may be different to that from your previous mortgage. And even if your mortgage is portable, you will still need to go through the same eligibility checks as you did with your first mortgage. If your circumstances have changed significantly, this could impact your ability to access mortgage products.

How do shared ownership mortgages work?

Shared ownership schemes are sometimes known as part ownership schemes. This is a government initiative that aims to help first-time buyers and those on lower incomes to get on the property ladder.

A shared ownership scheme works by giving buyers the opportunity to buy a portion of a property and then pay rent on the remaining amount. The remaining portion of the home may be owned by a housing authority or a property developer. Buyers can typically purchase between 25% to 75% of a property. This significantly reduces the deposit they will require and can allow individuals to move into a higher value property. See Money Advice Service.

Over time, they will have the option to purchase more of the property, or the whole property. To do this, you would need to have the property valued again. If the value of the property has increased, you could end up paying more than you did for your initial share.

The rules for shared ownership eligibility are very strict. You will have to have a household of under £80,000 to quality, and £90,000 in London.

If you are eligible, you will only have to provide a 5% deposit, but you can offer more if it is available. Remember that a rental fee will be due to the housing authority responsible for running the scheme, so this should be factored in to affordability calculations.

How do equity release mortgages work?

Equity release is advertised as a simple way to release value from your home without having to move house or downsize. An equity release mortgage is available to people over the age of 55. It is an agreement to release a portion of the value of your house as a lump sum. Money Saving Expert explains in further detail.

When you pass away or move into a permanent care facility, your home is sold and this is used to pay back the loan. You will pay interest on the amount you borrow, and this is often added to the loan amount and deducted from the sale of your home. You will often have the choice between taking the money in one lump sum or taking it in installments.

After you have taken out your equity release mortgage you will still be able to live in your home rent free. You will still be responsible for the maintenance of the house.

When choosing an equity release mortgage, it’s possible to ring fence a portion of the value of your home to save as an inheritance for your family. It’s also possible to protect yourself from negative equity by taking an equity release mortgage from a lender with a “no negative equity” guarantee. This will ensure that your family will not have to pay back more than you borrow.

How do self build mortgages work?

If you want to build your dream home instead of modifying an existing home, you may need a self build mortgage. Not everyone has access to a large pot of money to pay for building works. Instead, you can apply for a self build mortgage to cover the costs.

Unlike a residential mortgage which is paid in one lump sum, a self build mortgage is often released in stages. The first will allow you to purchase the land and subsequent payments will be staggered to allow you to pay for building work at key milestones. This helps to limit the risk to the lender, as things could go wrong at any stage in the process. You will typically get a payment to purchase the land, then another when the foundations have been laid, another when the roof is added and then further payments when the house is sealed and then completed.

With a self build mortgage, you will not only have to demonstrate why the home is affordable, you will also need to show your plans for building the new home. This will include a full breakdown of costs and how you plan to manage the build. Securing planning permission in the early stages is vital as this can quickly derail a project.

In general, a self build mortgage will have higher interest payments than a residential mortgage. You may also be asked to provide a much larger deposit which could be up to 50% of the total cost. But it’s important to think about the value of the home you will own at the end. You will often end up with a home that is worth a lot more than it cost to build it.

When you factor in the higher deposit and the fact that you will have to borrow a lot less than if you purchased an existing property, your mortgage repayments could be a lot less. Once the property is built, some lenders will allow you to remortgage on the new value of the property.

How do mortgages work in Scotland?

Mortgages in Scotland operate in a similar way to the rest of the UK. But with Scotland having its own legal system, there are a few differences that you will need to know about. First of all, there are fewer lenders operating in Scotland and many of them will have postcode restrictions, so it can limit your choice of lender.

Before making an offer on a property in Scotland, you will need to have something known as a mortgage in principle and your funding in place. This can make things more difficult if you are also selling a property. But the positive is that this means there are rarely breaks in the chain, which gives buyers and sellers some reassurance. Once a bid has been accepted, it is legally binding and the fine print can be worked out. This includes things like the move in date and which items are to be included in the property.

The actual mortgage application is very similar to the rest of the UK. You will be required to provide a deposit, usually between 5-25%. You will also have to pass eligibility checks, including checks on your income and outgoings, and your credit score. The only part that differs is that you will have to have a mortgage agreement in place before you can put in an offer. Without the mortgage in place, it is unlikely that your offer will be taken seriously.

How do business mortgages work?

Business mortgages are sometimes known as commercial mortgages. This is another type of business lending that can help companies and organisations to grow. They are typically used to secure property, purchase land for development, or to expand a buy-to-let portfolio. Business mortgages under £25,000 may be unsecured, but anything above this will need to be secured against another asset such as a residential property.

Business mortgages may last from three to 40 years in length, so they can be a significant undertaking. Unlike a residential mortgage, you will not be able to secure a business mortgage with a deposit lower than 20%. In general, you will need between 20-40% of the property value as a deposit.

Since business mortgages are considered to be higher risk than other mortgages, they may have higher interest rates than a residential mortgage. But these rates will often be better than a normal business loan, so it can be a cost-effective way to access money for expansion and growth. It’s also worth noting that the tax payable on your business mortgage will be tax deductible. And finally, business mortgages can be a good way to protect your business from future rent increases.

How do self cert mortgages work?

Self cert mortgages are also referred to as self certification mortgages, or self employed mortgages. This type of mortgage allowed the self employed to “self certify” their income on a mortgage application without providing any evidence. This type of mortgage was banned in 2014 after the Financial Conduct Authority reviewed the way self cert mortgages were used.

The self cert mortgage was also known as a “liars loan” as so many people used this loophole to access bigger mortgages. With so many people inflating their income to borrow more money, it was inevitable that this would soon become problematic for the mortgage industry as a whole. This is why self cert mortgages are no longer available.

This means that the self employed will now have to apply for their mortgage in the same way as everyone else. Instead of self certifying their income, the self employed have to provide between 1 and 3 years of accounts. Lenders will consider you to be self employed if you own more than 25% of a business and if it is your main source of income. This includes sole traders, contractors and company directors.

If you only have accounts for one year, it can be difficult for lenders to get a full picture of your earnings. The amount of time you have been self employed can impact the lending products available to you and which lenders are willing to work with you. It can be helpful to work with a whole market broker in order to find the best deals available to you.

Self Employed Mortgage: How Much Can I Borrow?

Applying for a mortgage while self employed used to be a very simple process. The applicant could simply state their self employed income and then the lender would trust that this was true. Sadly, the self-cert mortgage was widely abused and many people were using this system to apply for more money than they could afford.

In 2011, the self-cert mortgage was banned. The self-employed now have to work a lot harder to prove their income for a mortgage. While this might seem unfair, all of these changes were made to protect the self employed.

While business might be booming on month, the nature of freelance work is such that the following month could be a lot quieter. With sporadic income, you may find that your mortgage is easily affordable one month and a strain on your finances the next.

To protect freelancers and the self employed, lenders now carry out strict affordability checks to ensure that your mortgage payments will remain affordable. With this in mind, let’s look at how mortgage affordability is calculated and what you can do to make this work for you.

How much can I borrow?

Most lenders will allow people to borrow between 4 times their annual income and 6 times their annual income. This will all depend on your individual circumstances. For example, newly qualified doctors may be able to access a higher multiple because their earnings are likely to increase a lot over the course of their professional life.

What many self employed individuals find unfair is that they will need to provide evidence of their accounts for the past few years. The lender may then take an average of these annual earnings to estimate your future earnings. Or they might take the lowest annual earnings as their final figure. Even if your earnings are consistently growing, lenders will be reluctant to estimate your future earnings.

If you have been self employed for less than one year, you will need to work a specialist mortgage broker to find a lender that will help you to get the best possible deal.

How can I prove my income?

Most lenders will ask to see annual accounts from the past 2-3 years. This is often in the form of an SA302 form. This form is provided by HMRC and outlines your tax liability based on your self assessment tax return. If you work with an accountant, you could also ask them to prepare your accounts and confirm your income with your chosen lender.

When completing your self assessment tax return, it’s important to ensure that you are accurate and honest with your income. While you might want to minimise your tax bill, this annual income figure will be used to calculate how much you can borrow.

What if I am the director of a limited company?

If you run a limited company, it’s important to find a mortgage provider that understands your income. Directors and partnerships will often have different income sources. This can include dividends and company retained profits.

All of these different income sources will need to be factored in to your affordability calculations. If you don’t work with the right lender, then you could end up being offered a multiple of your basic monthly salary instead of a multiple of your total income.

Where can I go for advice?

At Niche Mortgage Info, we connect individuals with the right mortgage broker for their needs. This website is a great place to start to find out more about self employed mortgages. And if you’re ready to start your journey, we can connect you with a broker who fully understands your needs.