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.