Did you know that another benefit with joining Clipper Contracting is that we can assist you with getting a mortgage?
An understandable concern of being a temporary worker is that mortgage lenders may look more favourably on those who are permanently employed, and some lenders do make it difficult in their requirements.
However – help is on hand! We strongly believe that there needs to be more education around this topic, and support for temporary workers, which is why we have partnered with a specialist mortgage adviser who can help you navigate this otherwise tricky market. Let’s start at the beginning.
How banks and non-specialists brokers assess income for mortgage
Potential lenders will of course take a keen interest in your type of work to assess your finances. They will want to know if you can afford to make repayments on the mortgage, so will have specific calculation tools they use. For employees, this usually means looking at the latest three months’ payslips and perhaps a P60 too. These are used to determine your gross salary.
With the example below, the total gross earnings are circled, and this figure will be multiplied over 12 months to give a gross annual income figure for the mortgage application. The income for this applicant would be £38,800 for mortgage assessment purposes.
A typical lending amount is 4.5 times annual income, so very simply this applicant could borrow £174,600.
Seems simple, but where do the issues arise?
Even with a compliant Umbrella payslips such as Clipper’s, there can be a lack of understanding from non-specialist brokers.
The image below shows the same section of the payslip for a Clipper Umbrella contractor who earns £450 per day over 5 days per week.
On paper, it’s clear that a contractor on £450 a day will earn more than a salary of £38,000, but lenders do not see it this way!
Despite the gross earnings being higher than the previous example, what the lender will focus on is ‘Basic Pay’. This is because that number is viewed as variable or non-guaranteed, meaning that other aspects of the payslip such as ‘Additional Pay’ are most likely ignored or capped at basic salary, so large portions of the income are not taken into account.
Therefore, if you are a typical High Street lender, you are defining this contractor’s basic income as £19,760, and so applying the same 4.5 times income, this means a maximum loan of £88,920. Quite different to the previous payslip of £174,600!
Umbrella company contractors are not assessed very often by these advisers, and therefore not easily understood.
There is a strong likelihood that income may be declared incorrectly, and the bank will request an ‘employer’s reference’ from Clipper Umbrella. So what happens next?
Mortgage lender requesting an employer’s reference
Below is an example of a High Street Bank’s request for an employment reference from Clipper Contracting – it’s pretty typical of what lenders ask for.
Crucially - the questions are very specific and do not allow for explanations.
These figures would confuse an underwriter at a bank, as the basic pay is very low compared with the overall earnings.
Based on this example, the ‘Additional Pay’ is capped at the basic salary, giving an income of £39,520 with a maximum loan of £177,840. The good news (and this is rare) is that the lender has not declined the application, or ignored the ‘Additional Pay’ element. The bad news is that they have still ignored over £77,000 of contract earnings by assessing the contractor as a linear permanent employee, resulting in a modest loan for a good income.
How will Clipper and Cleerly help instead?
Put simply, Cleerly know how to present your mortgage application so that you are assessed as a professional contract worker rather than a regular employee. The founders pioneered bespoke mortgage underwriting for Umbrella contractors with High Street lenders.
They will;
Ensure that you are put into the correct pigeon-hole for income assessment purposes.
Explain and demonstrate why the contract rate should be used to define earnings, rather than gross income on the payslip.
For our £450 per day Clipper Umbrella contractor using a 46-week calculation, this would mean an annual contract income of £103,500. This means a mortgage borrowing figure of £465,750 instead of £177,840!
Importantly, it also means a much quick approval of the mortgage given the income versus the likely loan, and any chance of a decline on affordability is eradicated.
Benefits of Cleerly
Sounds great! What are the next steps?
It is important of any mortgage application that specialist advice is sought early to ensure that any plans to move or remortgage are realistic. Cleerly’s experienced contractor mortgage advisers can also provide proof that you can borrow what you need to make an offer, and even speak with the estate agent to consolidate your offer.
Clipper Umbrella recommend Cleerly because of their experience and expertise at working with contractors over many years.
You can check how much you can borrow and contact Cleerly here: www.cleerly.co.uk/Clipper-contracting/.
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