Many contractors use an umbrella company to manage their contract income, because of the ease that it provides in dealing with their pay and tax. Much like a PAYE process, the management of the process is less time consuming than hiring an accountant. The umbrella companies team of tax experts will manage your finances to make sure that your pay is efficiently handled in a reasonable time frame.
What are the issues?
Whilst using an umbrella company provides benefits when dealing with contractor income, it can also present potential issues when attempting to raise funds for a mortgage. During the mortgage process, you are likely to be asked for evidence of your income. Many contractors will be aware that lenders do not fully understand the process used by the umbrella company to manage the income.
Because of this, they often request three months’ payslips and a P60 to be provided instead. Using this process will mean part of your income, which is processed via the payslip, does not constitute evidence of your full pay. Because this is the only part that the lender will accept for evidence of income, your lending options will become limited in terms of the amount you can borrow.
However, there is another approach available that will allow you to use all of your income.
How do we prove income?
At Contractor Financials we have created longstanding relationships with many lenders, which allows us to create our own process in order to secure mortgage funding designed especially for contractors. Using our bespoke process means that we can not only help you to raise the amount you require for a mortgage, but it also offers you access to high street lenders; thereby giving you the range of lower level interest rates that would normally be unavailable to contractors.
At Contractor Financials, rather than supplying your payslips, we have agreed with lenders that you can supply a current contract in order to provide income evidence. This method to determine your personal income differs from each lender, but in essence we aim to agree with an underwriter a level of income that is deemed to be adequate for you, by annualising your hourly or daily rate of pay. By doing this, we are able to provide you with the means to use the majority of the income that you are receiving from your umbrella company, to demonstrate to the lender that affordability should not be a concern.