What is a Mortgage
For many the answer may seem obvious. However, we are aware that many contractors come from different parts of the world and therefore the term might be somewhat alien to them.
Wikipedia - mortgages, for example, highlights the meaning of the word and how the meaning actually differs from one region of the world to the next.
In Australia and South Africa the term mortgage is commonly referred to as ‘Home Loans’, large parts of India refer to it as ‘Banhak’ and in many other parts of the world it is either referred to as ‘Home Mortgages’ or ‘Mortgage Loan’.
So the word mortgage has different terminology depending on which part of the world you originate from. However, for many of our clients in actuality it means the same thing: borrowing funds from a financial institution to purchase a home for you to live in, or to purchase a property for investment purposes.
How do Contractor Mortgages differ from “normal” Mortgages?
In essence they don’t. There is no such thing as a specific mortgage for contractors.
Mortgages are authorised based on a set of criteria being fulfilled by the borrower as outlined by various lending institutions. However, historically these lending criteria have been based on individuals being either employed or self employed. In recent times we have a seen a change in worldwide labour markets with more mobility of labour and the advent of technology. Many individuals nowadays are choosing to contract or freelance as opposed to work for one employer or set up a traditional company. This also suits many employers as they want specific skill sets for specific projects for short periods of time. However, this chosen method of working can create problems when trying to secure mortgage funding, as conventional methods of measuring income can leave this population with shortfalls in what they can borrow compared to what the would like to borrow. Another setback is historically this population have had to suffer higher rates of interest against their mortgage borrowing because of the lending institutions perceiving they present a higher risk.
A long process of educating lenders who harbour this misconception regarding contractors has ensued. The assessment of risk for these borrowers and a review of the corresponding lending criteria has led many to re-consider. Therefore, we can now secure mortgages for contractors where the traditional obstacles many contractors faced have been overcome. Namely, an underwriting process specifically designed for contractors and freelancers.
Firstly, income assessment can be done on a multiple of annualised contract rate, thereby allowing contractors to borrow more in line with true earnings as opposed to lenders taking a much narrower definition. Secondly, mainstream interest rates can be accessed so that higher rates of interest do not have to be tolerated when it comes to taking out a mortgage.
In essence, there is no such thing as a contractor mortgage, but a set of rules and definitions whereby underwriters will assess mortgage applications based on a set of specific criteria for the contractor and freelancing community in the UK.
