Mortgages: everyone needs a long-term plan
Mortgage lenders are realising that workers on short contracts are not always high-risk
Wednesday 25 October 2006
As much as half the UK workforce could work for themselves by 2011, according to research commissioned by Vodafone. Already one in eight Britons run their own businesses, and up to a third of the population are thinking about opting for self-employment.
An equally large group of people is working on either short- or fixed-term contracts, as employers and employees look for more flexible ways of working, without actually setting out to run a business.
Contractors have been somewhat overlooked by mortgage lenders. As they are neither employees nor self-employed, they might not have the evidence of salary and job status to get a normal mortgage, but nor will they have the accounts and paperwork of a self-employed person.
According to Cath Hearnden, of MyMortgageDirect, contractors account for around 15 per cent of all loan applications; 15-20 per cent come from the self-employed and the remainder from salaried workers. And the percentage of contract workers is rising.
Hearnden points out that the picture is complicated by the growing number of homebuyers who have full-time jobs but no permanent contract. As well as "serial" contractors in industries such as IT, who move from client to client, more and more people are being employed on fixed-term contracts in sectors as varied as local government, financial services and education.
"We are seeing more blue-collar workers on 12-month contracts, working for organisations such as councils," she says.
How does this affect my mortgage?
Although lenders are becoming more flexible in the way they treat homebuyers on contracts, the options open to a contract worker might be more limited than those for either an employee or the self employed.
An IT professional or other specialist who has worked on short-term contracts might find it easier to arrange a mortgage than a public sector worker with a job that is for a fixed term, especially if it is the first time the homebuyer has held a contract position.
"Most lenders will want to see a contract has been renewed at least once or even twice," Hearnden explains. "If you are looking for a low loan-to-value, it might not be a problem, but if you want to borrow a higher percentage of the price it can be difficult. It is also a problem if your contract is not renewable."
The length of the contract will also be a factor, as will any track record of employment in the field. Someone moving from permanent employment to contracting may be able to convince a lender to give them a loan on their standard, employed terms. But a career move into a different sector will be trickier.
Another factor is length of contract. According to David Hollingworth of London & Country, a contract with two years or more to run will satisfy most lenders. Shorter contracts, or those with a year or less left to run, may well mean an application is refused. "If you are coming to the end of the contract and there is no sign of it being renewed, that is a problem," he says.
What are the options for contractors?
The first step is to check the terms of the contract, and then talk through the options with a mortgage broker. As terms and lenders' policies differ widely, this is one area where good advice is essential. Some companies, such as Abbey and Halifax, have a reputation for being sympathetic to contract workers in IT and other professional services.
Homebuyers who do not have a track record of working as an independent contractor, or are on a fixed-term employment contract, may have to look beyond a regular mortgage. According to Cathy Hearnden a self-certification mortgage is an option, albeit at a cost.
"If someone has a history of stable employment and income, but has worked on several contracts or moved between jobs a lot, self-certification can suit. We can look at other proofs of income, such as bank statements," she says.
But self-certification should never be a first port of call, she cautions. Even the best deals will be 0.5 per cent costlier than a regular mortgage, and arrangement fees can be higher too.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Bargain Hunter: From The Outsider to 1984, catch a cut-price classic, read it in the rye
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Money Insider: Smart alternatives to the pensioner bond
Bank-beating exchange rates on your international payments
- 1 UK weather: Snow to fall in the coming week with sub-zero temperatures to last until early February
- 2 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 3 The enemy within: People who hear voices in their heads are being encouraged to talk back
- 4 Phil Neville backtracks on Tomas Rosicky 'I'd smash him' comments from Match of the Day 2
- 5 SAG Awards: Fake applause track interrupts Reese Witherspoon
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
British Muslim school children suffering a backlash of abuse following Paris attacks
iJobs Money & Business
£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...
£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...
£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village