Mortgages: Contractors vs Full time employed

[tingri]

Hi,

I am sure this has been covered before but I didn't come up with anything in my search of the site.
I am currently working in a full time position (in IT) and I want to give up my current job and work as a contractor from now on. Will being a contractor affect my possibility of getting mortgage approval in the eyes of the banks? I am a ftb and will be looking to buy a property to rent out. If it is going to be more difficult to get as a contractor, should I wait until I get my mortgage before making any changes with work?

Any advice would be welcome.

 

[LDFerguson]

Hi Tingri,

To be honest it will be easier if you buy your home before going on a contract basis. PAYE employees find it simpler to get mortgages than recently self-employed people or company directors (and as a contractor you'll be one or the other.)

For contractors, lenders look for a couple of years' accounts. If these aren't available they'll need to be satisfied that your contract is merely an extension of a job you've been doing for many years and is likely to be long-term. It's not always easy to satisfy them in this regard.

I am a ftb and will be looking to buy a property to rent out.

I presume you mean that you will be renting out rooms in your new home under the Rent a Room scheme? Otherwise you will lose your FTB status and be treated for Stamp Duty, mortgage and CGT purposes as an investor.

Liam D Ferguson
www.yourfirstcastle.com

 

[RainyDay]

I am currently working in a full time position (in IT) and I want to give up my current job and work as a contractor from now on. Will being a contractor affect my possibility of getting mortgage approval in the eyes of the banks?

Don't underestimate the impacts of changing from full-time to contractor - Do you have a plan for how you're going to pay the mortgage when you are 'resting' (i.e. between contracts).

 

[LDFerguson]

Good point - and don't forget the full-time employment rights and possibly benefits (pension / healthcare / sick pay / holiday pay / income protection etc. etc.) you'd be giving up too.

Then there's the extra time involved with keeping your own books and records and filing your own tax return. If you're a limited company, there's returns to the Companies Office too.