The difference between self employed and contractor mortgages

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Self employed and contractor mortgages are often seen as one of the same thing, yet this is not always the case. The lending criteria considered for both very much differ. We’ve outlined these below to help you with the process.

Lender criteria for self-employed:

  • Number of years trading – most commonly a 3 year trading history is preferred. This gives the lender the opportunity to assess the profit history and solvency. At Enness, we know a number of lenders who would consider less than 3 a year trading history.
  • Profits – the perfect scenario is to have steadily increasing profits year-on-year, however this is often not the case. Profits can increase significantly, or have a sharp fall or even a dip in the middle. This can alter the way that lenders calculate their affordability.
  • The type of entity – limited company, sole trader and limited liability partnerships are the most common forms of self-employment. Here lenders will calculate affordability differently depending on the way you are trading.

Lenders criteria for contractors:

  • How long have you been contracting for? If you have only just started contracting, this can make employers nervous about the stability of your income.
  • How long do you have left on your current contract? Lenders generally like to see at least 6 months left on a contract to feel comfortable.
  • History of contracting – some lenders like to see a CV to ensure you have had no major breaks between your contracts.
  • Evidence – accounts aren’t needed to evidence your income, but a copy of your current (and sometimes previous) contract are needed. Often, clients are working on a contract but are not issued with official contracts, so this can cause a problem.
  • Affordability calculations – contractors have a daily rate which is then multiplied by 5. This is then multiplied by a number of weeks – most often 42. However, we work with many lenders that will go higher than this to get the biggest loan available to you.