Getting a Loan or Mortgage
As a Contractor it can be difficult to get a Loan or Mortgage. Traditionally lenders tend to penalise Contractors when it comes to getting a Mortgage, with permanent employees seen as a much safer bet.
If you’re a highly skilled professional and you are considering going into business with your own Contractor Limited Company Commonwealth Contractors can help. We partner with Chartered Accountants who specialise in contractor accounts and can help to maximise your net contract retention.
To speak to an experienced advisor call Commonwealth Contractors now on 0330 390 9021 or Submit your Details and we will get right back to you!
Contractor vs Permanent Employee Mortgages
Loan and Mortgage providers like to lend their money to secure borrowers who can show a long standing positive credit history and a secure income. Permanent employees (who receive the same lump sums into their bank account each and every month) are therefore seen as safe, whereas Contractors who receiving varying income are looked upon as being more risky (even though they often earn far in excess of permanent counterparts).
Proof of income is also another major problem as providers need to see official payment documentation to approve a loan or mortgage. For Limited Company Contractors this can cause real problems as those outside IR35 generally set artificially low salaries (normally around £12,000 per annum) to minimise tax burdens and then take the remainder of income in the form of dividends and expenses. When providers look for proof of earnings they tend to only see the £12,000 base salary rather than the £60,000+ total package.
Limited Company Profits and Accounts
If you run your own limited company you will have to show at least two years company accounts to prove income (many lenders require 3 years audited accounts). If you have just started in business this could mean a very long wait.
In the first year you may decide to retain profit in the limited company. This could lead to issues with loans and mortgages as a provider would not consider the income yours until distributed as salary or profit.
Expense claims also affect earnings and the provider will not consider expenses when assessing personal income. The more you receive in reclaimable expenses the less is available to distribute as salary or dividends. In the first year of business a company generally incurs numerous start up expenses (website development and hosting, accountancy fees etc). You might consider not claiming these expenses if trying to be aggressive with assessable levels of personal income.
The problem is that while Limited Company Contractors are not deemed to be ‘sub-prime’, they are considered ‘Complex-prime’. Even if you do get the deal you want, you are likely to have to go through a specialist, and expensive, broker.
Find out More
To find out more about Commonwealth Contractors call now on 0330 390 9021 or Submit your Details and we will get right back to you!