PAYE and Umbrella company mortgages – This is how to get a mortgage if you work for one of these types of companies in the UK
In this article, we have written essential information for umbrella company workers looking for a mortgage.
We include how they affect your eligibility and what benefits they offer over other types of contractor deals, such as limited company loans.
Umbrella companies can be an excellent option for contractors who don’t want to deal with the hassles of managing payroll, collecting overdue invoices and dealing directly with the taxman.
These companies are essential payment routes for many temporary workers due to IR35 changes, which have made it unacceptable for many public sector employees to use a limited company.
While an umbrella company has many benefits, it can be challenging to secure a mortgage.
As a specialist mortgage broker, we have helped many umbrella company workers receive a mortgage. We have a few mortgage providers lending; they will use a contractor mortgage affordability calculator to determine how much you can borrow.
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What is an umbrella mortgage?
An umbrella company mortgage, as the name implies, is a loan that’s aimed at contractors, staff from agencies, and other professionals who work through an umbrella company.
These products are only offered by a few specialist lenders, as most high street mortgage providers won’t deal with employees or contractors who have been set up in this manner.
High-street lenders are more likely to refuse umbrella mortgage customers because their income is challenging to determine if it is a reliable method of servicing the mortgage.
Many workers in umbrella companies are paid the statutory minimum wage. They also earn commissions or bonuses based on the amount of funds they generate. Some have additional income streams that may not be as straightforward as a regular “basic” salary, which can cause problems with lenders.
A few UK mortgage lenders prefer to lend to borrowers on basic wages rather than pay packets that include multiple lines of commission and bonuses, so it is worth looking for a lender that considers these income types to get the best deal.
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What are the advantages of an umbrella contractor mortgage?
Use the contract value and not your payslips.
Contractors who are paid through an umbrella company are free to ignore the pay slips and fight with lenders over them. However, specialist lenders will consider the total contract value provided that the contract is signed and consistent.
Some want 12 months, while others prefer six months. Others are happy for it to be a new contract if it has been renewed at least once.
Regular income evidence
A mortgage umbrella company is an excellent option because it can give you a more historical record of your earnings. i.e. contractors who have their accounts may not be able to show proof of their income until the end of a tax year.
However, umbrella workers usually have regular (weekly or monthly) remittance slips that act as payslips and not year-end company accounts.
Mortgage as a new umbrella company
This could help you if your first job is in this field. Some lenders will approve mortgages with only 3-6 months of income from an umbrella company, while most self-employed lenders require three years and some two years.
Only a few lenders will accept less than 12 months of trading.
Borrowing more than self-employed
Additionally, if your income exceeds your gross pay from an umbrella company, you may see a lower net profit than the gross salary.
This means that umbrella mortgage lenders may be able to offer a more affordable mortgage than self-employed individuals.
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What are the disadvantages of an umbrella mortgage?
We’ve mentioned that some lenders, especially high street lenders, might not offer mortgages based on your total earnings if you are registered with an umbrella company.
Not all providers consider variable income and may require a long history of working for the company before considering an application.
Others lenders may refuse to lend mortgages to contractors working through umbrella companies. This is especially true if you need a mortgage for multiple firms and want one simultaneously.
Speak with our mortgage broker if you have an umbrella company income and if you have used a contractor mortgage calculator; still, you may require more accurate information and an introduction to a mortgage provider.
Umbrella company mortgage eligibility
Most providers will use the same criteria to determine your eligibility for an umbrella mortgage. However, there will be specific factors. Lenders want to know the following information when evaluating customers who are looking for a mortgage through an umbrella company.
- Time spent working with umbrella companies: Mortgage providers may look more favourably on those who have been a part of an umbrella company for over 12 months.
- Are you a current contract holder: People who have renewed their contracts with their umbrella company at least once could be more likely to get a mortgage.
- Work through one or more: Some contractors and agency workers work for multiple companies, sometimes with multiple umbrellas. While some lenders will allow this, others won’t.
The following are general factors that have an impact on eligibility:
- The applicant’s age: Some lenders won’t provide a contractor mortgage to applicants who are over 25.
- Bad credit: Contractors are considered high-risk. Some providers won’t lend to you if your file contains adverse credit. If you have been contracting for more than 12 months and your credit problems are more than two years old, others may be able to consider you.
- Income: The higher the income, the better. However, some lenders might not accept bonuses, commissions, or expenses paid through an umbrella business.
- Type of property: If the property falls under the non-conventional category, e.g. You could be considered too risky for lenders if the property you want to buy has a thatched roof, is listed, or is any other structure that was not built using bricks and mortar.
If you are an umbrella worker and are unsure if you would qualify for an umbrella scheme mortgage, click the link below:
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What maximum amount can you borrow for a mortgage with an umbrella company?
Each umbrella company mortgage offered will differ with each mortgage lender depending on your affordability.
Income for a mortgage using umbrella company contract rates
To get a rough idea of how much you might be able to borrow as a contractor, multiply the current day rate by the days you work and divide the result by 48 weeks. Then multiply that total by four to five, depending on how generous the lenders are, to get an estimate of maximum borrowing with umbrella company lenders.
Example: A person with a day rate of £200 would earn £48,000 per year and be able to borrow a maximum of 4 times, (£192,000) and 5 times would be (£240,000).
Income for a mortgage using umbrella payslips
Lenders will generally consider the gross pay if you use umbrella company payslips, however, this may not be as important in many situations.
The amount a lender offers you may differ from the one shown above, depending on other factors, such as your deposit size, credit score, and other financial obligations.
You can use an online mortgage calculator or speak with a specialist broker quickly below with free advice:
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Umbrella company mortgages vs limited company mortgages
Perhaps you are a contractor and want to decide whether you should join an umbrella company or go the limited company route. This will help you to determine which option is best for you to get mortgage credit.
Both umbrella company mortgages and limited company mortgages may need a specialist lender since mortgages for contract workers are not straightforward. A limited company mortgage can offer you more benefits than an umbrella company.
This is due to tax savings and may allow you to get a better deal with certain mortgage providers. Most lenders won’t accept earnings or dividends that you have earned in the past two years.
Some may consider a self-employed mortgage application based on one year’s accounts. This could limit the amount of money you can borrow.
Speak to an umbrella company mortgage broker
No matter your credit history, we can help. The main aim of our job is “mortgage approved”. We will take the stress out of looking for a mortgage and will ensure you find the best mortgage deal.
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