Umbrella Company Mortgage

The first thing that we think is useful for you is to know the definition of an umbrella company, and after that, we can discuss umbrella company mortgages. These companies are a type of business organisation that provides services or products in different areas such as insurance, banking, finance, real estate etc. The primary purpose of this kind of organisation is to provide financial support to its clients by providing them with loans at low-interest rates. In other words, they act like banks but without any branches. Instead, they have their own offices where they offer all kinds of financial services, including mortgage loans.

With any mortgage application, the potential lender must know just who is borrowing, together with proof of their financial status in terms of regular earnings. Providing that evidence is likely to prove somewhat more challenging and complex if applying for a mortgage when working for such a company. While you may be earning a good, regular income, tracing the source of those earnings is a more complicated path back through the umbrella company for whom you are working.

Here we look at the challenges faced when getting an umbrella organisation mortgage.

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What are the pros and cons of working for an umbrella company?

The principles – and advantages – of working with these companies are described by the aptly-named website Umbrella. While we are not accountants, this information cannot be construed as advice – this type of company may be helpful if you are a self-employed, independent contractor looking for a more straightforward organisational structure than setting up your own limited liability company. The latter involves such administratively tiresome – and expensive – chores as maintaining a payroll, chasing your invoices payable, and dealing with your tax affairs.

Instead, you may work for such a company as an independent professional under a temporary contract of employment so that the organisation takes responsibility for all those payrolls, invoices, and tax filing chores.

Indeed, some of the tax advantages in a contractor forming a firm may be undermined by the introduction of changes to IR35 rules, now due to come into effect from April 2021, explained ITContracting on the 14th of February 2020. For example, suppose you are an employee of such company. In that case, however, IR35 becomes irrelevant because you are taxed as an employee, explains Contractor UK, But the advantages of being employed by such an organisation may become disadvantages when applying for a mortgage.

What is an umbrella company mortgage?

As we have explained, an umbrella mortgage is just that – a mortgage specifically designed to be granted to an independent contractor employed by an umbrella company.

These mortgages may not be widely available from regular high street lenders but can be arranged by specialist lenders prepared to consider the exceptional earning patterns and employment status of a contractor working for an umbrella company.

If you are a sole trader, you can also apply for similar mortgages. Read more about sole trader mortgages in our other article. 

Mortgage Statistics for Umbrella Company Employees in the UK

Here are some statistics related to umbrella companies and mortgages in the UK:

• In the UK, there are an estimated 600,000 umbrella company employees as of 2021.

• According to a recent study by Mortgage Solutions, more than three-quarters of self-employed people in the UK are worried about their chances of getting a mortgage. 77% of respondents believed that being self-employed made it harder for them to be approved for a mortgage.

• According to Kensington Mortgages’ new self-employed index, nearly a third (30%) of self-employed individuals in the UK are “very confident” about the future of their businesses over the next six months. The index is based on a survey of 550 self-employed people and will be published quarterly. The majority of respondents (67%) were male and aged between 35 and 54. The most confident age group was 35-44, with 40% of self-employed people in this category claiming to be “very confident.” In terms of future investment, 26% of respondents said they will definitely invest in their business over the next 12 months, with the most popular method being personal savings (48%), followed by business loans (19%) and remortgages (1%). Kensington Mortgages expects the self-employed index to become a valuable tool for financial advisers.

These statistics highlight the growing demand for mortgages among self-employed individuals, including umbrella company employees, as well as the challenges they face when trying to obtain a mortgage.

Why is it difficult getting an umbrella company mortgage?

Some mortgage lenders are reluctant to disentangle the more complicated income stream of a contractor employed by an umbrella company. A typical arrangement is for the umbrella company to pay the contractor a minimum wage for hours worked and top this up with bonuses and commissions on the income generated. You might also have other income streams which are more difficult to disentangle from your basic salary as an employee.

For all these reasons and the fact that some lenders will, therefore, decline a mortgage to employees of umbrella companies, you may need to apply for a specialist umbrella firm mortgage.

What are the eligibility criteria for an umbrella mortgage?

Different mortgage providers naturally have separate policies. But some of the more general criteria for eligibility include:

• a history of at least 12 months working for an umbrella company – preferably with at least one renewal of your contract with the company;
• the lender may also have a preference either way for your working for a single umbrella company or multiple companies;
• some lenders have a lower age qualification of at least 25;
• concerning your income, some lenders may consider any bonuses and commissions, but others may not – as with any mortgage application, the higher your income, the better; and
• the healthier your credit history, of course, the better any lender is going to like it.

How do I prove my income for an umbrella company mortgage?

There are various ways to prove your annual income, working in such organisation. The good news is that you are likely to borrow more on an umbrella company mortgage than if you are self-employed. That is because your umbrella company can provide the mortgage lender with written proof of your regular earnings – based on records likely to be complete and reliable than any you kept yourself.

Furthermore, an umbrella company loan may also consider the value of contracts you have undertaken as an employee of the company and not just the basic salary you have earned as your annual income.

What is an Umbrella contractor mortgage?

Umbrella contractor mortgage loans are available from most mainstream banks and building societies. However, they tend to be less common than other types of mortgages. This is partly because few people know about them, so fewer applications come forward. It’s also true that the interest rates charged by umbrella loan providers are generally slightly higher than standard variable rate products.

However, this doesn’t mean that you won’t find an umbrella organisation mortgage provider willing to offer you a competitive deal. It is always better to include a specialist mortgage broker at the time of application to get a suitable mortgage deal.

What are the documents required for an umbrella contractor mortgage?

To obtain a mortgage, umbrella company employees are required to provide several documents to prove their income and employment status, including:

• A minimum of 12 months’ worth of payslips
• A minimum of 12 months’ worth of bank statements
• A contract outlining the terms of their employment
• Tax returns from the previous three years
• Proof of ongoing work contracts
• Proof of identity and address

There are many other documents that you may need to provide for such mortgages, we would suggest you contact an experienced mortgage broker before starting the application process.

Are there any drawbacks to an umbrella scheme mortgage?

We have already touched on some of the potential drawbacks. The initial drawback in turning to an umbrella company for your employment as a contractor is that many prominent mortgage lenders will not consider your earnings as proof of the necessary regular income.

As we have also mentioned, you may need to choose carefully between those specialist umbrella company mortgage providers who favour your working for just a single company and those that might welcome your employment by multiple umbrella companies.

The point is that – although the pool of potential providers is relatively limited – there are umbrella company mortgage lenders likely to offer a range of mortgage options, but you may need to contact a mortgage broker.

Next Steps – Umbrella Contractor Mortgage

If you are a contractor currently employed by an umbrella company and are thinking about applying for an umbrella company mortgage, remember that here at NeedingAdvice.co.uk Ltd, we have the expertise and experience to offer all the help you may need. So don’t hesitate to get in touch with us today to see how we can help.

FAQs – Umbrella Company Mortgages

What is an umbrella company mortgage?

Umbrella Company mortgages are a type of home loan aimed at contractors of the agency staff or other professionals who are working in an umbrella company. Most of the lenders may reject your application if you are working for an umbrella company because of the complicated umbrella company income structures. As many umbrella company workers are paid a statutory minimum wage for the hours they work and earn commission income or bonuses based on generated funds. Apart from this, there are always some mortgage lenders who can offer you a mortgage based on your income, but for that, you need to contact a specialist broker to start your application. A specialist contractor mortgage broker like ourselves could help you by connecting you with a suitable lender for your application.

What is a contractor umbrella company?

A contractor umbrella company is different from a limited company as workers are paid on statutory minimum wages. An umbrella company mortgage is where you work for an umbrella company instead of being self-employed. You can apply for an umbrella company mortgage through a mortgage broker. If you don’t want to use a mortgage broker, then you can go direct to The main difference between a traditional contract and an umbrella contract is that the latter allows the employer to pay the employees through their own umbrella company rather than directly.

This means that the umbrella company acts as an intermediary between the employer and the employee.

What are the drawbacks of an umbrella scheme mortgage?

As discussed above these schemes are based on the variable income of the employee which is not taken seriously by every lender. Lenders want to see the gross contract rate instead of post-tax accounts, which makes it a little complicated.

How do I apply for an umbrella contract mortgage?

If you would like to apply for an umbrella contract then you should first speak to your existing bank or building society to discuss how they handle umbrella contracts. They will probably tell you that they don’t accept umbrella contracts as evidence of income.

If you decide to go ahead anyway, you will have to fill out a form provided by your chosen umbrella company. You should make sure that you give all the information requested.

You will also need to provide copies of:

Your current tax return (if applicable) Your latest payslip A copy of your latest P60 You will also need to provide details of your previous employers including contact numbers and addresses.

Why is it difficult getting an umbrella company mortgage?

Some mortgage lenders are reluctant to disentangle the more complicated income stream of a contractor employed by an umbrella company. A typical arrangement is for the umbrella company to pay the contractor a minimum wage for hours worked and top this up with bonuses and commissions on the income generated. You might also have other income streams which are more difficult to disentangle from your basic salary as an employee.

For all these reasons and the fact that some lenders will, therefore, decline a mortgage to employees of umbrella companies, you may need to apply for a specialist umbrella firm mortgage.

What are the eligibility criteria for an umbrella mortgage?

Different mortgage providers naturally have separate policies. But some of the more general criteria for eligibility include:

• a history of at least 12 months working for an umbrella company – preferably with at least one renewal of your contract with the company;
• the lender may also have a preference either way for your working for a single umbrella company or multiple companies;
• some lenders have a lower age qualification of at least 25;
• concerning your income, some lenders may consider any bonuses and commissions, but others may not – as with any mortgage application, the higher your income, the better; and
• the healthier your credit history, of course, the better any lender is going to like it.

How do I prove my income for an umbrella company mortgage?

There are various ways to prove your annual income, working in such an organisation. The good news is that you are likely to borrow more on an umbrella company mortgage than if you are self-employed. That is because your umbrella company can provide the mortgage lender with written proof of your regular earnings – based on records likely to be more complete and more reliable than any you kept yourself.

Furthermore, an umbrella company loan may also consider the value of contracts you have undertaken as an employee of the company and not just the basic salary you have earned as your annual income.

Are there any drawbacks to an umbrella scheme mortgage?

We have already touched on some of the potential drawbacks. The initial drawback in turning to an umbrella company for your employment as a contractor is that many prominent mortgage lenders will not consider your earnings as proof of the necessary regular income.

As we have also mentioned, you may need to choose carefully between those specialist umbrella company mortgage providers who favour your working for just a single company and those that might welcome your employment by multiple umbrella companies.

Will I have to pay a higher interest rate as a contractor?

No, in most cases, an umbrella contractor has to pay the same interest rates as others. But in some cases, a contractor can pay a little lower interest rate than a permanent employee. It is possible in cases where the credit rating of a contractor is excellent.

The reason why contractors often pay less interest rates is that they tend to have a shorter repayment period. This means that the monthly repayments are spread over a shorter time frame. In addition, contractors usually have fewer debts outstanding than permanent employees.

Will I be classed as high risk for a mortgage as a contractor?

No, a contractor with a healthy credit score would never be considered as high risk by banks and building societies. Mortgage lenders do not assume a contractor as a high-risk individual unless they have some outstanding debt or adverse credit issues. Potentially as a contractor, you would be able to take a mortgage based on four times the contract rate.