Mortgages when working for an umbrella company
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 an umbrella 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 a mortgage while working for an umbrella company.
What are the pros and cons of working for an umbrella company?
The principles – and advantages – of working for an umbrella company are described by the aptly-named website Umbrella.
While we are not accountants – so this information cannot be construed as advice – an umbrella company may be useful if you are a self-employed, independent contractor looking for a simpler 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 an umbrella company as an independent, under a temporary contract of employment, so that the umbrella company takes responsibility for all those payroll, invoices, and tax filing chores.
Indeed, some of the tax advantages in a contractor forming a company 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. If you are an employee of an umbrella company, however, IR35 becomes irrelevant because you are taxed as an employee, explains Contractor UK.
But the very advantages of being employed by an umbrella company may become disadvantages when it comes to applying for a mortgage.
What is an umbrella company mortgage?
As we have explained, an umbrella company mortgage is just that – a mortgage specifically designed to be granted to an independent contractor, employed by an umbrella company.
They are mortgages that may not be widely available from regular high street lenders but are arranged by specialist lenders prepared to consider the exceptional earning patterns and employment status of a contractor working for an umbrella company.
Why is it difficult getting an umbrella company mortgage?
Some mortgage lenders are reluctant to have to disentangle the more complicated income stream of a contractor employed by an umbrella company. A common arrangement is for the umbrella company to pay the contractor a minimum wage for the hours worked but to 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 company mortgage.
What are the eligibility criteria for an umbrella mortgage?
Different umbrella mortgage providers naturally have different 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?
The good news is that you are likely to be able 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 reliable than any you kept yourself.
Furthermore, an umbrella company mortgage 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.
Are there any drawbacks to an umbrella 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 of the major 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 options.
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 Needing Advice we have the expertise and experience to offer all the help you may need. Please contact us today to see how we can help.