Contractor mortgages: how to get one
Being a contractor can offer you flexibility and independence, but also uncertainty – especially when buying a home. This guide tells you how lenders will assess your mortgage application and what steps you can take to improve your chances of getting approved.
How much can contractors borrow on a mortgage?
When you apply for a mortgage, the mortgage provider will first work out how much to lend you – known as an affordability assessment. It will look at how much you generally earn, what your expenses are and how secure your income is.
As a contractor, you will usually need to show evidence of your earnings history for at least the past six months, though many lenders will expect to see two to three years of accounts. Due to this, applying for a mortgage early in your contractor career can be more difficult, though you may still have options.
How contractors can get a mortgage when paid a ‘day rate’
Some lenders may be willing to calculate your annual income on the basis of your day rate, though many require you to have a 12-month contract for this to be an option.
In this case, lenders will take your daily rate and multiply it by the number of days you generally work per week, then multiply that out to the full year. Be aware that lenders will also want to factor in any holidays and gaps between contracts, so most will assume you only work 46 and 48 weeks per year.
Day rate example
If your day rate is £400 and you generally work four days per week, your estimated annual income would be around £76,800.
£400 x 4 days = £1,600 per week
£1,600 x 48 weeks = £76,800
This approach can be especially helpful if you only recently left full-time employment and do not have an established track record. In this situation, lenders will want to see evidence that you’re likely to succeed as a contractor, including previous experience and qualifications in your field, signed agreements and an existing network.
How to strengthen your mortgage application as a contractor
Offering a larger deposit – and so borrowing a smaller amount – is one way to improve your chances of success. The less risk a bank takes in lending to you, the more favourably they will view your application.
Lenders will also look for signs of long-term security. If you can produce an ongoing agreement with an employer, or evidence of past agreements that are likely to be renewed, this may make your application more appealing to lenders.
While taking breaks between stints may be one of the perks of contracting, minimise time off in the lead-up to buying a home – lenders may be wary if they see you out of work for more than eight weeks in a 12 month period.
In addition, consider how good your credit score currently is and whether you need to work on improving it before submitting a mortgage application. This may be even more significant for contractors, as lenders will look for evidence of good financial management when your income is not guaranteed.
You’ll also need to show evidence of your expenses and operating costs – the more information you provide, the better the lender can understand your financial situation and feel confident lending to you.
Courtesy of Which.co.uk
The value of Enterprise and Entrepreneurship Education
There was a time when higher education was disconnected from the world of work – research was pure rather than practical, and education was there for education’s sake. Now, students expect their degree to prepare them for when they leave, and universities compete for high rankings in employability league tables. It’s no surprise then that as more and more young people are choosing to work for themselves, universities are increasingly considering how they can better prepare students for self-employment.
Rapid technological change is transforming the jobs market, and enterprise education is essential to ensure young people have the skills needed to take advantage of this digital revolution – boosting UK growth and productivity in the process. Preparing graduates for the future of work means equipping them with entrepreneurial attributes.
The recent launch of QAA’s (Quality Assurance Agency for Higher Education) updated guidance on enterprise and entrepreneurship education for higher education providers offers some welcome recommendations in this area. To date, entrepreneurial support at university has been typically focused in business departments, even though the largest group of freelancers are those working within the arts and media. The updated guidelines go some way to address this issue, by recommending that enterprise education be positioned centrally within universities to ensure all students can access support. This is a welcome recognition that enterprise and entrepreneurial education is vital to support the career progression of today’s graduates across all disciplines, rather than being the exclusive remit of business schools.
The guidance also draws attention to the unique position of universities to develop enterprising capabilities. Young people aged 18-24 are nearly twice as likely as other age groups to aspire to start a business, and universities are the ideal place to test out ideas and learn from failure. Students can use this time to develop crucial
entrepreneurial skills including creativity, decision making and communication – all while the risks remain relatively low. The report stresses that these are skills relevant to those entering employment, as well as those who become self-employed, and should therefore be embedded into the curriculum across all disciplines.
While the guidance makes a strong case for putting enterprise and entrepreneurship education at the heart of university careers services, the report could have gone further to recognise the different forms of self-employment open to graduates. In the report, there remains a focus on developing a “big idea” – the guidance summaries enterprise education as “having an idea and making it happen”. The reality is that entrepreneurialism is more often about freelancing on a project-by-project basis, and the focus on developing something revolutionary can put a lot of people off. Universities should promote how students can use their existing skills to work on a freelance basis, and provide guidance on issues such as marketing, cash flow and tax as well as generating innovative ideas.
As a first port of call to many of those working in this sector, the updated guidelines provide valuable direction for universities wishing to prepare their students for the future of work. QAA’s recommendation that enterprise education be made more accessible is welcome, universities must now place an emphasis on raising awareness of the support they have available if we are to increase student’s exposure to entrepreneurial support. With just two per cent of freelancers learning about self-employment at university, the challenge is now to learn from best practice taking place across UK universities and scale up initiatives.
Courtesy of Imogen Farhan, IPSE Policy & External Affairs Officer
IR35 SPECIAL: 'Outrageous' agencies shifting liability onto contractors & candidates
According to the candidate affected, unbeknownst to him, a new clause was inserted into his contract that explained “your company [i.e. the contractor] shall indemnify…against any losses suffered or incurred by the IR35 legislation.”
This means that the anonymous recruitment agency in question has shifted the financial and legal liability onto the contractor they’ve placed, if the IR35 placement, and obligation, is found to have been made incorrectly. However, there are doubts this clause will stand-up to legal scrutiny.
Graham Fisher, CEO of Orange Genie, a contractor management company, believes although this practise is not yet widespread he would advise contractors and candidates not to sign contracts with indemnity clauses.
Calling the use of such clauses “outrageous”, he told ContractorUK: “We are not aware of [clauses like this] being imposed on any of our clients but we would advise them not to sign…yet I’m not sure the clause would be enforceable.
“These indemnity clauses are the equivalent to bullying and should be resisted.”
Historically, if a contractor, or the company they are paying taxes through, is perceived by HMRC to owe extra money, the recruitment and employment agencies they are sourced by are asked first. However, reports of changes to contractor’s contracts will change the liability. They are also beginning to concern the candidates and contractors potentially affected by these changes. One contractor told ContractorUK: “The clause is in the contract I had to sign…[and] I am worried by [it], as it seems to go in a negative direction for contractors. The agency didn’t alert me to it.”
HMRC have said they will not comment on commercial contracts between the contracting candidate, the company they work through and the agency they were recruited by. The government claimed it changed IR35 to bring contractor taxation in line with PAYE workers and ‘fill-in’ a £400million treasury ‘blackhole’.
The initial rollout caused confusion and anger amongst contractors and recruiters.