Mr Freeman had been offered a mortgage of £237,500 in addition to his £200,000 deposit, which would allow him to purchase a property for £437,500. However, Mr Freeman was hoping for more as he had recently secured a lucrative contract with a client and felt he could afford a higher mortgage amount.
Our client who is based in Brighton had provided the previous broker he had spoken with his last 2 years SA302’s and copies of his last 2 years’ accounts. For tax reasons, like many well-managed businesses, he limits the amount he pays himself in salary and dividends.
He had drawn an average of approximately £50,000 in salary and dividends from the business, while his profits were only slightly higher due to reinvesting a lot of money into the business and taking a 6-month sabbatical for travel.
Despite having a high turnover, his profits were lower than in previous years. The previous mortgage broker had conducted research treating the client as a self-employed company director and secured an Agreement in Principle (AIP) for 4.75 times the client’s profits, which amounted to £237,500.
Speak To an Expert
Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.
The previous broker had failed to ask Mr. Freeman in more detail about the contracts he had in place, which unfortunately is a common oversight. Despite the previous broker using an income of around £50,000, we asked Mr Freeman to provide us with his most recent contracts.
We assessed the application as an IT contractor mortgage and looked at using his day rate instead of his company profit. Mr. Freeman’s latest contract was from February to September, earning him £675 per day, 5 days a week, which totals to £3,375 per week.
At the time, we were in March and he was only 1 month into his contract, but we managed to find a lender that would lend based on the annualised gross contract value. They multiplied the weekly contract rate by 48 weeks of the year, allowing for 4 weeks of holiday. This resulted in an income of £165,000 being used for the mortgage assessment.
This had a doubling-up effect, as Mr. Freeman’s income was above £100,000, qualifying him for 5.5 times income with that lender.
Subject to having the required deposit, he could borrow £907,500, combined with his £200,000 deposit, allowing him to purchase a property for £1.107 million. This was a significant increase of £669,500 compared to the other broker’s proposal.
How we can help you
Specialist mortgage lenders are familiar with the unique nature of the IT contractor business, including the demand for contract work and the varying income streams.
They often offer more favourable criteria and affordability assessments specifically tailored to IT contractors, taking into consideration their contract rates and potential for higher earnings during contract periods.
This allows IT contractors like Mr. Freeman to potentially qualify for higher mortgage amounts based on their contract income, rather than just their company profits or salary, leading to more favourable mortgage options and greater borrowing capacity.