Are you a contractor?
In which case you will find the information provided by our linked mortgage provider CMME helpful.
Avoiding the ‘Unaffordable Mortgage Trap’ as a Contractor
October 2014 will see the latest round of new rules imposed on banks around how they assess mortgages, but how does this affect contractors?
From next month, no more than 15% of a bank’s new loans can exceed a multiple of 4.5 times the borrower’s provable income. If the bank doesn’t use all of the contract income, lending may be capped or declined altogether.
It doesn’t stop there, however. Banks must also assume that the interest rate on the new mortgage is 3% higher when applying affordability ‘stress-tests’, meaning that the income that is used must stretch further to avoid a mortgage being declared unaffordable.
Based upon this stricter assessment of mortgages, Clearways would encourage their clients to seek proper advice from a specialist who understands how they are paid prior to undertaking a mortgage application.
Contractor Mortgages Made Easy (CMME) have been working with major UK lenders for the last 10 years, and have been pivotal in influencing how contractors’ income is assessed.
Their ‘Bespoke Underwriting’ process means that contractor income will be defined via the gross contract value, and not just personal taxable earnings.
This will mean all of the contract income is used in the mortgage affordability assessment, drastically reducing the chances of a contractor application being branded ‘unaffordable’.
CMME are happy to engage with decision-makers within the banks on behalf of Clearways Accountants clients, to establish how they would fare with a proper mortgage application under the new rules. We would encourage our clients to take advantage of this no obligation service in order to avoid any future issues with an application.