Umbrella companies are ideal for contractors who want to avoid the rigmarole of maintaining a payroll, chasing overdue invoices, and dealing with the taxman. They are also essential payment routes for many temporary workers, especially since the IR35 changes that have made the use of a Ltd Company no longer acceptable to many in the public sector.
Working this way certainly has its benefits, but it can also present unique challenges when it comes to securing a mortgage.
Here at OMA, customers often ask us whether there are mortgages for umbrella company employees and contractors, so if you’re pondering this question, this article is for you.
Below, we have provided everything you need to know about umbrella company mortgages, what impacts on your eligibility for one, and the advantages they have over other types of contractor deals, such as limited company mortgages.
As the name suggests, an umbrella company mortgage is a home loan aimed at contractors, agency staff, or other professionals who work through an umbrella company.
Only a handful of lenders offer these products as many mainstream mortgage providers are unwilling to deal with contractors and employees who are set up this way.
High street lenders often turn away umbrella mortgage customers as their income can be more complex to assess and unpick whether it is a reliable way to service the mortgage or not.
Many umbrella company workers are paid a statutory minimum wage for the hours they work, and earn commission or bonuses based on the funds they generate, and others have additional lines of income that may not be as simple as a regular “basic salary”, which can again cause issues with some lenders.
Some providers prefer lending to borrowers on basic wages, rather pay packets supplemented by multiple lines of commission, bonuses and allowances etc, so your best option may be to find a lender who takes these income types into account in order to find the best deal.
What are the benefits of an umbrella contractor mortgage?
Using the contract value, not payslips
If you are a contractor paid via an umbrella company, then rather than suffer the scrutiny of the pay/remittance slips and battle with a lender over this and that, some specialist lenders are happy to consider the overall contract value, so long as the contract is signed and consistent with the pay received, and has been in force for an acceptable period of time (some want 12 months, others 6, some happy with it being a new contract if it has been renewed at least once).
Regular income evidence
One of the main benefits of being set up with an umbrella company from a mortgage perspective is that the umbrella company can provide you with a more traditional history of your earnings. i.e. contractors who run their own accounts may not have evidence of their income until the end of a tax year, whereas most umbrella company workers have regular (weekly, or monthly) remittance slips, that serve as payslips instead of year end company accounts.
Mortgage as a new umbrella company
This may help with your application if you are new in the role, as some lenders are willing to approve a mortgage with just 3-6 months of umbrella company income, when most self-employed mortgage lenders want 3 years, some 2, and only a few will accept a minimum of 12 months trading.
Borrowing more than if considered self-employed
Moreover, if you’re self-employed and offset a larger amount of expenses at the end of the year, your net profit may appear less than the gross pay from the umbrella company, meaning that umbrella company mortgage lenders may offer a larger maximum affordable mortgage than those who would otherwise be considered self-employed.
What are the drawbacks of an umbrella scheme mortgage?
As we’ve already mentioned, some lenders - particularly mainstream ones - might be unwilling to offer you a mortgage based on your full earnings if you’re registered with an umbrella company, as not every provider takes variable income into account in the same way, and many want a long history of working in the company before they will consider an application.
Other lenders will likely turn you away entirely as they do not offer mortgages to contractors who work through umbrella companies, especially if you want a mortgage and work for multiple firms at once.
If you’re an umbrella company employee seeking the best mortgage deals for someone in your situation, get in touch. The expert advisors we work with can identify the specialist lenders who successfully arrange deals for contractors every day.
Umbrella company mortgage eligibility
When calculating your eligibility for an umbrella company mortgage, most providers will apply the same criteria they use when assessing customers for any other mortgage product, although there are also specific factors that will come into play.
When assessing customers who are seeking a mortgage with an umbrella company, lenders want to know:
Time working through umbrella companies: Those who have been set up with an umbrella company for more than 12 months may be look on more favourably by the mortgage provider
Have you had a contract renewal: Those who have renewed their contract with their umbrella company at least once may stand a better chance of securing a mortgage
Do you work through 1 or multiple: some contractors and agency workers have multiple firms they work for, and at times, more than one umbrella company. Some lenders are fine with this, others will only take the income from one firm
General factors that impact on eligibility include…
The age of the applicant: Some lenders will only provide a contractor mortgage if the applicant is over the age of 25.
Adverse credit: As contractors are already considered high risk, some providers will not lend to you if you have adverse credit on your file. Others may consider you if have been contracting for 12 months and the credit issues are over two years old.
Income: The more the better, obviously, although some lenders may not recognise bonuses, commission or expenses paid through an umbrella company.
The property type: If the property is a non-conventional type - e.g. listed buildings, thatched roof or anything that wasn’t build using bricks and mortar - this, paired with your employment status, could make you too high risk for some lenders.
If you’re an umbrella company worker and you’re unsure whether you’d qualify for a mortgage, get in touch and the advisors we work with will assess their application and pair you with a lender who may be able to help. Don’t worry if you’ve been turned down for a mortgage in the past, as there are specialist providers who arrange deals for contractors with complex circumstances every day.
How much can I borrow on an umbrella company mortgage?
The answer to this question will vary from lender to lender, as they use their own methods to determine affordability.
Income for a mortgage using umbrella company contract rates
For a very simplistic and general idea of how much you may be able to borrow as a contractor, multiply your current day rate by the number of days you work, and multiply the answer by 48 weeks. Next, multiply this total by four or five and you will get a ballpark figure for max borrowing with most umbrella company lenders, depending on their generosity.
Example: Someone with a day rate of £200 would have an income of £48k a year, and then be able to borrow max between 4x (£192k) and 5x (£240,000).
Income for a mortgage using umbrella payslips
If you are using umbrella company payslips, then in general, lenders will consider the total of the gross pay, which may not equate to as high a figure in a lot of scenarios.
Obviously, this is not an exact science and the amount you’re offered by a lender could differ from what the above calculation yields, based on other factors such as the size of your deposit, your credit score and your other financial commitments.
For a clearer idea of what a lender might offer you, get in touch and the advisors we work with will discuss your application and pair you with the lender offering the best deals for contractor in your circumstances.
Umbrella company mortgages vs limited company mortgages
Maybe you’re a contractor who is wondering whether to join up with an umbrella company or go down the limited company route, and you want to know which of these choices will make you more likely to secure mortgage credit.
In truth, both limited company mortgages and umbrella company mortgages may require a specialist lender as contract workers in general are considered a niche customer type.
In terms of the benefits of a limited company mortgage, you’re net take-home pay is often higher than with an umbrella company due to the resultant tax savings, and this may help you secure a better deal at certain mortgage providers.
However, most lenders will only accept your earnings and dividends from the last 2-3 years (with some considering just 12 months), and this could place a cap on the amount you’re able to borrow.
Speak to an umbrella company mortgage broker
If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...
Find out more about how we help those with an umbrella company get a mortgage