Umbrella Contractor Mortgages
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Umbrella Contractor Mortgages
Michael Tilston talks through mortgages for umbrella contractors.
What is an umbrella contractor and how do they work?
Umbrella contractors are effectively someone who works normally for one company – although it can be several – and effectively has a payroll company in between.
It affects the way that people are paid and taxed, which is meant to be beneficial for them. It can get a little bit complex. There are multiple different ways I’ve seen this set up in the past, some of which lenders don’t mind, and some of which they do not like at all.
What I always say is that we need to see all your paperwork when you come to see us. But essentially having an umbrella company is just a different way of being paid and taxed.
Why do contractors use umbrella companies?
Some companies just prefer to work through an umbrella. The last few contractors I’ve looked after work for one organisation, which might be a council or a hospital, as an example.
They contract their work through an umbrella company, which puts them on their payroll, but the contractor then effectively works for a different organisation. It’s like adding in a middleman that takes a small cut of the pay and structures how it’s received.
Sometimes that can be beneficial for tax purposes. It all has to be taken into account and looked at in quite a lot of depth when looking at a mortgage.
What criteria do I need to meet for a mortgage as an umbrella contractor?
You need to have all your paperwork in good order. Lenders normally want the original contract that you were using ‘employed’ under – you might still class yourself as self-employed.
Normally you will be provided with weekly or monthly payslips, which will show a breakdown of your income. A lot of lenders don’t like looking after people on umbrella contracts, to be honest, but that’s fine. That’s what your mortgage broker is there for.
We’ll take the contract and payslips and work it all out. Based on what we can see and what we know, we can confirm what a lender is going to use as your income.
How much can I borrow as an umbrella contractor?
In theory, it’s the same as everyone else, but it just depends on how that income is worked out, which varies with every lender.
Some will treat you simply as employed, which is nice and easy. But normally an umbrella contractor’s pay slips are broken down into multiple different forms of pay rather than just a basic.
Each lender is different, and some will ‘haircut’ the income. They might use 46 weeks out of 52 rather than the whole year. Or they’ll treat the basic as your basic pay and additional pay as overtime, perhaps.
So again, it’s all down to your broker knowing what they’re looking at and which lender will suit what you’re trying to achieve.
How do I prove my income for a mortgage as an umbrella contractor?
It’s crucial to have your paperwork in order. Each person I’ve ever spoken to in this area has something different, but they all come under an umbrella contractor title.
You will normally have a contract of some description. If you don’t, you’re probably just self-employed, not an umbrella contractor. Get that contract and all those payslips and give them to us.
Sometimes we might identify that you’re missing something. We might be able to help you go back to your client or umbrella company and explain what you need. They then provide it to us. We’ve never had any issues with that.
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Come on in and be quite forward with what you’re after – just be very honest with your mortgage broker. It’s good to make sure that we know absolutely everything about you. That way we can’t be blindsided by a lender. An open book policy is very good when coming to see your mortgage broker.
What’s the difference between an umbrella contractor mortgage and limited company mortgage?
An umbrella contractor is generally employed through one firm to work for another, which is similar to self-employment. Effectively you’ve got a payroll company in between.
Most lenders will view these contractors as employed, but some view them as self-employed. And that’s where you start getting into the limited company space.
We might find there’s an overarching contract to a limited company you’re a director of. So it’s very difficult to give a broad answer to these questions. It could be that your limited company has a contract with the hospital, NHS Trust or council you work for.
That’s where the paperwork is key. Even in this situation you would have that initial contract between your client, the umbrella company and your limited company. It’s complicated, but it’s our job to work out the most suitable route.
We’ll take everything you’ve told us and decide which will be the right lenders for you. There’s lots of different facets to this case. It’s very difficult to give a blanket answer to that one. We need to see paperwork before we can see the difference between each one and which camp you sit in.
What are the benefits of getting a mortgage as an umbrella contractor?
It depends on who you go to and what you’re trying to achieve. Because each lender is different in how they treat umbrella contractors, it’s going to be down to the benefits to you. There might be more options than you think.
Generally speaking, mortgages are mortgages, but it might be that you’re treated as employed rather than self-employed, meaning you can borrow more than you thought. So you could buy a house that you might want to stay in for 10 or 15 years rather than just five years, for example.
How do I apply for a mortgage as an umbrella contractor? What’s the process?
It’s exactly the same as for anyone else. It’s all going to be down to the paperwork you can show and prove. Your broker will hopefully have done a few of these in the past, and be able to see if anything’s missing, or if they need something more substantial from the umbrella company to prove your income.
Actually applying for the mortgage itself is just down to how the income itself is proved.
How can a mortgage broker help with an umbrella contractor mortgage?
If you’re an umbrella contractor, you should be speaking to a mortgage broker. If you’re extremely high net worth, you might find your bank is able to help – but otherwise you’re going to want someone on your side to help you.
Navigating through the mortgage journey can seem complicated. You won’t do this every day as an umbrella contractor – you have your job and that’s how you make your money. This is how a decent mortgage broker should be able to navigate you – it’s what we do day in, day out.
It’s very difficult to give a clear, general standpoint on what an umbrella contractor can and can’t do. So see your broker and spend some time with them. They will be able to help you get the mortgage that’s right for you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.