The Complete Guide To Umbrella Contractor Mortgages

Our jargon-free guide to getting a contractor mortgage if you're employed by an umbrella company

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Graham Cox
CeMAP Mortgage & CPSP Specialist Finance Advisor

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.

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How will mortgage lenders assess my income?

Income is usually assessed on a 46 week working year basis, though some allow 48 weeks.

To calculate allowable income, most mortgage companies use either the contractor's:

  1. Gross contract value OR
  2. Total gross pay from payslips

Some mortgage companies use the lower of the two figures, others stick to one of the above calculation methods.

Calculating gross contract value

Assuming your contract specifies work five days a week, the formula to calculate the gross contract value for day-rate contractors is:

  • Day rate x 5 days x 46 (or 48) weeks

Where less than five days are specified, the lower number is applied.

For contracts that specify an hourly rate, some lenders use seven hours a day, others eight. The calculation then becomes:

  • 7 (or 8) x hourly rate x 5 days a week x 46 (or 48)

Calculating total gross pay from payslips

Often the loan provider will simply take the gross pay specified on the monthly payslip and calculate a 46 or 48 week amount like so

  • Multiply the gross pay on the monthly payslip x 12
  • Divide by 52 to get the weekly gross pay
  • Multiply weekly gross pay x 46 weeks (or 48 weeks)

How much can I borrow?

There's no standard answer to this question. Every provider has it's own method for calculating the maximum borrowing amount. The figure is based on a whole range of factors including:

  • credit score and history
  • age of the applicant(s)
  • the mortgage term
  • whether the mortgage rate is fixed and if so, how long for
  • occupation
  • income and whether it's rising or falling year to year
  • ongoing expenditure commitments such as child maintenance, spousal support, schooling or tuition fees etc
  • credit commitments and debt levels
  • Loan-to-value (LTV)

All lenders apply a maximum Loan-To-Income (LTI), typically 4.5 x gross contract value or total gross pay to calculate the maximum borrowing amount.

That figure may then be revised down, depending on the level of ongoing credit and other committed expenditure.

A good advisor will run the numbers through the mortgage provider's affordability calculator to get an accurate figure.

How long do I need to be contracting for?

To be treated as employed for income verification, the typical requirements are:

  • Two years relevant industry experience in employed or self-employed roles OR
  • At least one year's continuous contracting work, with six months of the contract remaining.
  • The contractor has no more than one contract.

The above should be treated as a guideline only as some providers can show some flexibility in the right circumstances.

What documentation do I need?

To assess your income, lender's will want to see your current contract and your latest 1-3 payslips.

Our documents checklist has full details of all the paperwork required to assess your case and submitting an application.

Book a call back and save your most valuable business asset...time.

"Brilliant from start to finish. Graham managed to find a main high street lender who offered a brilliant rate. Would highly recommend."

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Getting an umbrella contractor mortgage

Understanding the mortgage criteria and complex requirements around umbrella contractors is a full-time job.

As a dedicated, whole-of-market self-employed mortgage adviser, SEMH can save you the time and hassle of having to do it all yourself.

We find the best pound-for-pound mortgage deal for your circumstances, handle the paperwork, submit the application and guide you every step of the way.

How to get in touch

To get started, schedule a call using our quick and easy enquiry form. You can book a time slot on a day and time to suit you, including early evening.

Alternatively, please call us on 0117 205 0655. There's no-obligation and we're more than happy to answer any questions you have.

Graham Cox - MLIBF CeMAP Mortgage Adviser & Director of Hub FS Ltd

About the author

Graham Cox is the founder of Self Employed Mortgage Hub, the trading name of Hub FS Limited.

Based just north of Bristol, SEMH is an independent, whole of market broker and a true specialist in self employed mortgages, helping business owners across the UK get great mortgage and protection deals.

Graham's market commentary and analyis is regularly quoted in the national press and media, including The Guardian, Telegraph, FT Adviser, and BBC Radio Bristol.