Contracting under an umbrella company has become a popular choice in recent years, The main catalyst has been the potential to fall inside IR35 now that the HMRC has tightened up the Off-Payroll Working Rules for the private sector.
But how does contracting via an umbrella company affect your chances of getting a mortgage?
This guide explains the ins and outs of umbrella contractor mortgages, how your income and affordability is assessed, how long you need to have been contracting for and much more besides.
What is an umbrella contractor mortgage?
An umbrella contractor mortgage is simply a standard mortgage product taken out by a fixed or short-term contractor who is employed by an umbrella company.
Similar to IT contractor mortgages and Limited company contractor applicants, there are no mortgage products specifically for umbrella company contractors, though a few providers have dedicated contractor-only deals.
But in general, contractors can apply for exactly the same mortgage products and rates as any other type of applicant.
As your de facto employer, the Umbrella company is responsible for payroll. This includes issuing deductions for tax and National Insurance contributions (NIC), as well as issuing statutory sick pay (SSP), holiday entitlement and so on.
Most mortgage providers treat umbrella contractors as a PAYE employee, not a self-employed applicant. More on the implications of that later.
Can I get a contractor mortgage working under an umbrella company?
Yes. Whilst it's not as straightforward as it would be for a permanently employed applicant, and success will depend on your circumstances fitting lender criteria, getting an umbrella company mortgage is absolutely possible.
If you would like to discuss your requirements in more detail, you can book a free 15-minute consultation here.
Does contracting via an umbrella company make it harder to get a mortgage?
No. The majority of banks, building societies and specialist lenders accept umbrella mortgage applications, or will at least consider it on a case-by-case basis.
The documentation required of applicants, the eligibility criteria used and the way income is assessed differs from lender to lender. But with good preparation, sufficient income and the right advice, there's every chance of success.
Offshore umbrella companies
Due to the unscrupulous tactics of some offshore umbrella firms, some mortgage providers refuse to consider applications from any contractor employed by an umbrella company., or at least one based off-shore.
Hoping to attract clients with the promise of paying less tax, these umbrella companies set up off shore loan schemes in tax havens like the Isle of Man and Jersey.
These loans were an attempt to disguise contractor earnings. Unsurprisingly, HMRC soon caught on to this fraud and in recent years have started to clamp down hard on the umbrella companies and contractors involved.
Of course, there are many excellent, ethically-run umbrella firms as well. If you have concerns about your current umbrella company, the FCSA has an excellent guide to compliant umbrella companies here.