Tag Archive | "mortgages for contractors"

Bank of Ireland to Introduce Mortgages for Contractors

I’ve said it before and I will say it again…getting a mortgage if you are a contractor is tough. Most people who apply are declined, that is the reality.

Fortunately, Bank of Ireland, UK Division, want to change the way self employed people and contracting professionals are seen by the mortgage industry, and that is why they have just announced a new financial service in the marketplace.

This new mortgage service by Bank of Ireland is tailored towards self employed contractors who have been doing business for at least 12 months and have current contracts and bank account statements to verify they are earning an income.

What I have been hearing from industry insiders is that Bank of Ireland will be lending up to 90% LTV, with a minimum contracting income of £50,000 and affordability that is based on 80% of a contractors income. This has yet to be confirmed by the Bank themselves though.

While it is good to see Bank of Ireland getting into the contractor mortgage market, there is still many banks and lenders out there who don’t want anything to do with the self employed. This is despite millions of people in the UK who are now their own boss, and in many cases earn more than people who have a “traditional job.”

Yes, I do understand that mortgage lenders want to reduce their risk and only lend money they are reasonably sure can be paid back, but at the end of the day, contractors, freelancers, and the self employed in general are becoming more and more common, which means I think they have to start standing up and taking notice.

The Bank of Ireland, UK Division, have decided to do it, but how many well known banks and lenders are going follow suit? I think it could be a while until we see big brands offering mortgages to contractors on a regular basis, although at some point they will have to start taking notice as more people check the self employed box when filling in that mortgage application.

My only thought about this new mortgage service from Bank of Ireland is that 12 months trading history might not be enough time to really get a good idea about the suitability of a client.

In my opinion, 5 years is a much better indication of whether or not someone has the right income level for a mortgage or loan.

If you start making mortgage loan decisions based on 12 months worth of income in the contracting world, then we could be taking a step backwards if you ask me…back to the days when getting a mortgage was easy and lenders were approving people like money was going out of fashion.

What we are looking for here is a good balance. Easier for legitimate contractors with a good track record to get a mortgage, but no so easy that anybody with a few months of income can get a mortgage. There needs to be common sense.

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FCA Concerned About Mortgages for Contractors

It wasn’t long ago that umbrella contractors struggled to get a mortgage, but now the opposite is true, and the FCA has spoken about their concerns.

In short, what they are saying is that many specialist lenders are not doing enough checks when lending to contractors and the self employed in general, and this is resulting in irresponsible lending.

Their main issue of course is that many contractors may very well end up borrowing money they can’t afford to repay, sending them right into years of debt.

The Mortgage sector manager for the FCA, Lynda Blackwell, spoke recently at the Mortgage Business Expo where she voiced her concerns, specifically around the issue of some lenders only asking for 1 years worth of trading or business records when making their decision

For once I actually agree with the FCA here, because if there is one thing I don’t like to see it’s lenders giving out money without the proper checks needed to determine if someone really can afford to pay back the money.

Let’s face it, 1 year of records for a contractor, freelancer, or business owner is definitely not enough to make an informed decision about whether or not their income is consistent.

It’s this kind of lending that led to the economy crashing back in 2008. Surely we don’t want a repeat of that in 2016? Hopefully, with the FCA now addressing the matter measures can be taken to ensure the same thing doesn’t happen again.

Yes it’s important that contractors have the same kind of access to mortgages as those who are employed in full-time work, but that doesn’t mean they should just get approved with a few basic details.

So what kind of trading records are acceptable? Lynda Blackwell seems to think it should be 3 years, although personally I still think this isn’t enough.

In my opinion, and I’m sure many contractors will disagree with me, I say that a minimum of 5 years records is what the self employed must have in order to get a mortgage.

The reason? We all know that being self employed can be inconsistent, with 1 year being great and the next being totally the opposite, and this happens for a number of reasons, with many different factors at play.

When you have 5 years of trading records then it shows consistency, and gives the lender a better idea of exactly how your income has been and what it should look like over the next 5, 10 and 20 years.

Of course, every situation is different and in some cases a contractor or small business owner may have assets they can secure against the loan in order for the lender to be more confident about giving out a mortgage.

In this scenario 5 years of records are probably not required, but I would guess in 90% of mortgage applications they are.

Let’s just hope that common sense wins the day and we don’t have thousands of contractors in debt and having no way to pay their mortgages in a few years time.

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