Mortgages: Contractors vs Full time employed

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.

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.

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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

tingri said:

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?

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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).

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.