The mortgage market review (MMR) that launched in April this year caused concern for some contractors, who worried about how the new rules might affect them. But according to a recent article on Contractor Calculator, if you have a specialist financial adviser who understands how contractors work – and has good relationships with mortgage lenders – you shouldn’t fear too much.
Speaking to Contractor Calculator, Tony Harris – managing director of independent financial advisers ContractorFinancials – explains how contractors can deal with some of the changes.
Harris asserts that: “Selected lenders continue to offer contractors mortgages based on their gross annualised contract rate, so in many respects it is business as usual.”
However, contractors who choose to go to high street lenders could find that there are more issues involved, as “most lenders cannot cope with the infrastructure and training requirements of the new regime imposed by the Financial Conduct Authority (FCA)”, he explains.
The FCA’s mortgage market review brought a range of new measures intended to help contractors and other borrowers afford their mortgages. Borrowers are now questioned in detail about their income and outgoings, which means that contractors will also have to provide this information. This will help lenders review suitability and offer the relevant advice.
However, Harris highlights that a lot of high-street lenders underestimated the additional effort involved in implementing these changes – such as extra staff – meaning that it’s likely to take longer to receive a mortgage offer. Established independent firms, however, are already likely to have highly qualified staff, meaning that they are better able to cope with the MMR.
According to Harris, specialist lenders also “understand that contractors have substantially more disposable income from their gross fee income compared to an employee’s salary.”
Applications can no longer be fast-tracked, and high street lenders can require initial conversations lasting 2-3 hours, as opposed to specialised contractor mortgage brokers who usually need no longer than 20 minutes.
To prepare for the initial meeting, contractors should have a clean credit record and their latest contract to hand. In addition, they should have three months of personal and business bank statements; utility bills from the last three months; an updated copy of their CV and two forms of ID.