An umbrella contractor mortgage is aimed at people who work through an Umbrella company. Some lenders do not offer mortgages to contractors who choose to work this way.
Each lender treats the income from the umbrella company differently, so the amount you can borrow can vary significantly. It’s important to do your research before applying for a mortgage if you work for an umbrella company – or find a good broker to help you.
Contractors tend to use umbrella companies because they act as a third party employer – it means the contractor can choose the projects they work on, but they have a business taking care of their employment administration. Most Umbrella schemes work in the same way – it doesn’t matter if you’re an IT contractor, a graphic designer or a builder.
When a client hires you as a contractor to work on a project, the umbrella company invoices them for the work and collects the payment on your behalf. You’re enrolled on the Umbrella Company’s PAYE system and are paid income from the invoice after deducting items like tax and national insurance and different fees. This is all slightly different to being a self-employed contractor.
The criteria is the same as for a normal mortgage application. That means all the usual affordability checks and credit checks. Every lender has different criteria when it comes to income, so it’s important that we choose a lender that will allow you to borrow the amount required based on your circumstances.
Again, it depends on the lender and how they treat your income. Lenders have different ‘income multiples’ to calculate borrowing, based on the loan to value and your income. The lower the loan to value and the higher your income, the more you can generally borrow.
Income multiples are normally between 4.49 times your salary to 4.75 times your salary. However, some lenders will go up to five times your income in certain situations.
Lenders have different criteria for contractors who are paid via an umbrella company. Some lenders will treat you as self-employed if you pay your own tax. They will require two years’ SA302 forms – this is an accountant’s reference.
Other lenders may treat you as employed, and use an average of your last three payslips or invoices. Meanwhile others will treat you as a contractor and use your day rate to calculate the affordability, unless the contract states the actual hours and days worked. It really depends on which lender we choose as to how they will work out your income.
The difference between someone working through an umbrella company and a limited company is that the lenders will normally treat a director of a limited company as self-employed. They’ll use your salary and dividends to work out the income. If your shareholding is below 25%, some lenders will treat you as employed.
Because there are different ways of calculating income from umbrella companies, we can choose the best lender for your circumstances.
A big benefit is that you can choose a lender that will use your gross income instead of your net figure. That’s not the case if you are seen as self-employed or a limited company director. It means you can potentially borrow more money than with a lender who treats you as self-employed.
Also, if you’re self-employed, lenders normally average the last few years’ income and want a minimum of two years’ accounts. This can be a disadvantage if you have only recently become self-employed, because the first year’s figures may be low due to setup costs. With an umbrella contractor mortgage, you do not need to have been contracting for very long, especially if you have previous experience in the same industry.
Some lenders will not lend to people who work for an umbrella company, so you will need to find a mortgage company that offers umbrella contractor mortgages.
These aren’t usually different products, they just have criteria around how they calculate income for affordability checks. However, there are some mortgage companies that offer specific products for contractors. In some situations it’s best to use one of these niche lenders. We’ll work with you to decide what will work for your circumstances.
A mortgage broker can help by discussing your circumstances and requirements in order to recommend the most suitable mortgage. Lenders all have different criteria and some will allow you to borrow more than others.
We will compare the different options available and choose the most suitable lender – that means you can borrow the amount you require. We’ll also guide you through the process and make sure you know what needs to be done every step of the way.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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