Contractor Mortgages - Umbrella Company or Limited Company
Contractors worried about getting a mortgage often ask is it easier to get one while working through an Umbrella Company than it is working as a contractor through their own limited company.
With an umbrella company you are an employee of that company and as such they will be able to give you a mortgage reference the same as any other employer would. On the face of it this is therefore a safer option.
If however the mortgage company look at the nature of your role and in particular your contractual pay then this could still cause issues.With an umbrella company you are paid the statutory minimum wage for the hours you work but then earn a bonus based on the funds you generate. Some mortgage companies prefer basic wages than commission or bonus related wages when assessing how much to lend.
As with any mortgage application a lender will take comfort form the history of your earnings in this role. If you are new to working as a contractor through an umbrella company then this could still therefore cause you issues (as would starting any new job before a mortgage application).
Own Limited Company
An advantage of working through your own limited company is that your net take home pay is often higher. This is because of the current low levels of corporation tax, that dividend income can be taxed at lower rates and because it is possible to benefit from the flat rate VAT scheme. It is also still possible to pay yourself (and possibly your partner if they are working too) a wage with many opting to pay themselves the maximum up to the PAYE and National Insurance exempt thresholds (so net pay is the same as gross with no national insurance or PAYE deducted, plus no employers national insurance).
However, mortgage companies definitely don't tend to favour the self-employed or company director including those operating through their own businesses. They are also likely to look less favourably on dividend income compared to wages income.
Again what will be key is your earnings history and in particular if an accountant has verified your latest accounts.
The Good News
The good news is that there are a high number of mortgage brokers and lenders who now specialise and understand contractors working through these varying vehicles. It would be crazy for them not to as there are over 1,000,000 contractors working in the UK.
It also doesn't mean that once you have obtained your mortgage that you can change your payment profile and select the option which legitimately maximises your take home pay.
For further advice on the options available to you, please call PayMatters for Contractor Advice on 0800 121 6513.