The Funding for Lending Scheme introduced by the Bank of England has had a positive effect on lending, with interest rates dropping and new lenders and products being launched. Of interest to Contractors is the launch of Investec Mortgages earlier this year (20/02/2013) and a Contractor-specific product from the Saffron Building Society a month later (18/03/2013).
In a recent blog, I put the spotlight on Halifax and Virgin Money’s contractor mortgages and lending criteria. You may also be interested in my article on Clydesdale Bank’s inclusive approach to IT and non-IT contractors.
Contractor mortgages from Investec Mortgages
Investec Mortgages will lend against the 46-week value of your contract with a minimum income of £75,000 and at least a 15% deposit. The fixed fee structure is competitive, charging £999 for borrowing up to £500,000 and rising to £1495 for borrowing in excess of this amount. My reservation is that once you revert to the lender’s standard variable rate, it is LIBOR linked and does not offer a tax efficient offset facility.
Each case is individually underwritten. They also understand that contractors will have breaks in their contract history.
Special contractor mortgage range from Saffron Building Society
Saffron Building Society has launched a special contractor mortgage range. I have listed below basic criteria. The main advantage of the Saffron product that is available to all contractors.
- Term left on contract – six months
- Minimum contract history – six months at 80% LTV, rising to two years at 90% LTV
- Income calculated as Daily Rate X 5 X 48
- No adverse accepted
- Minimum age 25
You will be required to provide the following income documents:
- Current and previous contract
- Last six months’ invoices
- Last six months’ bank statements showing invoice credits
- CV outlining previous employment history
The following Optional Features are available on this product, subject to the individual underwriting rules for each feature and an increase in the rate:
- Interest Only
- Second Homes
- Contract Gaps
- Maximum LTV is 75%
The benefit of the Saffron Contractor Mortgage is that all the products are penalty free, so if your circumstances change you can sell your property without the need to pay a redemption penalty.
This flexibility is outweighed by the higher interest rates. The arrangement fees (as shown below) are charged on a percentage of your borrowing and, again, they do not offer a tax efficient offset facility:
- 1.5% of the advance at 90% loan to value
- 1.00% of the advance at 85% loan to value
- 0.50% of the advance at 80% loan to value
WHAT DOES IT MEAN TO ME?
The benefit of the Investec fixed-price arrangement fee is a clear benefit.
On borrowing £350,000 (85% loan to value), the lenders will charge:
- Investec: £999
- Saffron: £5,250
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