When you’ve made the jump from a permanent position to contracting, you may be wondering how the new working status will affect your chances of securing a mortgage. The reality is that the majority of lenders have designed the mortgage application and processes with standard employees in mind.
However, there are an ever-increasing number of lenders who are willing to work with specialist mortgage brokers, who have complete understanding of the financial side of contracting. By choosing to use the services of a specialist, a contractor can be sure that their application is presented in the best way, minimising the risk of a decline.
It’s best to be prepared with the correct documents and deposits, as this will make the mortgage process easier and faster. Documents vary from lender to lender and deposits can vary depending on the product you’re applying for and the location you choose to live in.
To dig deeper into the documents and deposits you need, we’ve asked one of our experts, Senior Mortgages Consultant Ben Goble, to answer a few burning questions around documents and deposits, and shine a little light on how these can affect the mortgages process and why.
The level of deposit varies considerably but it’s key to remember that providing a higher deposit will always give access to a lower interest rate. A limited number of lenders will accept no deposit from a borrower if their application is backed by a family member holding considerable savings as a guarantee.
If you’re looking for the lowest interest rates or for a lender to bend their lending criteria, a deposit of 25-30 percent will usually provide access to the most favourable terms.
There are currently several schemes available to support borrowers with limited deposit funds. The Help to Buy scheme provides access to a Help to Buy ISA, which can be used to build up the required funds to meet the minimum of 5 percent required to access the scheme. Help to Buy offer to provide up to 20 percent, or 40 percent in London, of the property value on new build homes, which will be added to the 5 percent held by the borrower.
Alternative options have recently become available that allow borrowers to be supported by affluent parents or relatives, so that zero deposit is required to purchase a home. A small sector of lenders will allow wealthy guarantors to put up the equity they hold in property or savings to provide security for a loan. Borrowers should note that the lender will implement a legal charge over the property or funds, with the option to recall the debt if the borrower defaults on their mortgage repayments. Your parent or family member would be advised to seek legal advice before offering to act as a guarantor in these instances.
In either of these instances most mortgage lenders require a full and thorough trail to the source of the deposit. In the case of a gift a lender will normally seek current bank or savings account statements which show the build up of funds over a three-month period. They will normally require a supporting letter from the provider of the gift, which will need to confirm there is no expectation that the monies are to be repaid or that they expect to receive proceeds from any future property sale.
In the case of an inheritance sum to be used for a deposit most lenders would be satisfied with legal documents that confirm the funds are due to be bequeathed to the borrower.
Mortgage lenders need to see a clear record that confirms the source of the deposit. Any instance where funds are being supplied by a third-party must be identified as this must be written into the mortgage contract. Your solicitor will ask for similar evidence, so don’t be surprised if they ask for the same level of evidence that is supplied to the mortgage lender.
Most mortgage lenders are willing to accept funds being drawn from a business account, if there is no detrimental impact to the operation of the business’s day to day activities and no other party has an interest in the funds provided. These should normally be drawn as a dividend, as a company loan will often be rejected by a lender as the funds are being used for personal use, not business related.
This is not an issue if a clear build up of funds can be identified, i.e. money hasn’t appeared recently from an unnamed or traceable source.
A lender will normally request proof of identification and proof of address for all applicants. Income evidence will be requested, which will vary depending on how the lender is assessing your affordability. You will be asked to provide three months bank statements to evidence your income and expenditure (business bank statements are also requested for the self-employed.)
Additional documents may be requested if the application involves additional elements, such as capital raising against the property for home improvements. In this instance a lender will normally require quotes to demonstrate the level of any additional funding matches the cost of the planned work on the property.
If specific documents cannot be provided it is very likely that a mortgage lender will reject the application. It’s best to exhaust all possibilities before attempting to discuss this issue with the lender.
There are various requirements that need to be met as part of a mortgage application. The identification and address evidence help to confirm the buyer is who they purport to be, while the income evidence is required to support the affordability of the application. Lenders need to scrutinise bank statements to be sure that the disclosed financial circumstances reflect the true state of your credit worthiness.
The Post Office provide a document certification service for a fee and these documents are accepted by mortgage lenders. Alternatively, many professionals are viewed as acceptable signatories for certified documents. Most lenders will accept certified documents from accountants, solicitors, GP’s, dentists and police officers, although there are other professions that are deemed to be acceptable.
As noted, most Post Office branches offer the service but a professional working in one of the previously mentioned professions can certify the documents. In some cases, your bank branch may be willing to certify the documents, although it is important that the documents are stamped by the branch.
This very much depends on the view of the specific lender. Some are open to accepting online prints, but others will request a certified copy of the original document. It’s best to enquire with your broker before proceeding to produce your documents.
Your CMME mortgage consultant will be able to accept your documents once uploaded to our client portal and these will be provided to the lender in a similar format.
