The rates of mortgages have dropped below four per cent, and many people are looking to take this opportunity to buy a new home or switch their existing mortgage.

There are a wide variety of reasons why a homeowner may want to consider restructuring their mortgage.

Maybe your current mortgage is coming to an end, or you now own a larger percentage of your property and are looking for a better deal than your current mortgage.

Perhaps you are planning to release some of the equity in your property by borrowing more, or you want to beat an upcoming interest rate increase.

The value of your home might have increased substantially since you first bought it, which could mean you are eligible for lower interest rates.

What are the challenges for contractors?

If you have become a freelancer, are self-employed or are the director of your own company, you may find it more difficult to obtain a mortgage than you did when you were employed by a company.

This is because lenders must see evidence of your income to give you a mortgage, and the variable nature of a contractor’s income can make it more difficult to meet strict income criteria.

Here are some general tips that may help you:

• Maintain a strong track record – Lenders like to see consistency, so aim to provide at least two to three years of accounts, contracts, or tax returns that demonstrate steady income.
• Build a healthy deposit or equity – A larger deposit or higher equity in an existing property can reassure lenders, reduce the loan-to-value ratio, and show that you can manage your finances despite fluctuations in income.
• Keep detailed financial records – Stay on top of your bookkeeping. Well-organised accounts, invoices, and proof of regular contracts help demonstrate stability to lenders.
• Avoid long gaps between contracts – If possible, plan ahead to minimise lengthy breaks between work. Regular, ongoing contracts give lenders more confidence in your earning potential.

When should you start to think about remortgaging?

It is important to be aware of when your initial fixed or tracker rate is set to come to an end so that you know when to look around at the market and see what sort of rates are available.

Your mortgage lender will generally write to you a few months before you move onto the standard variable rate to warn you that your rate could increase and invite you to consider remortgaging.

It usually takes between four to eight weeks to complete the remortgaging process, but it can take longer for contractors, so factor this in when looking for a new deal.

What are the typical fees involved?

When you are switching deals, several fees could apply depending on the circumstances around the change of mortgage.

If you switch deals during the initial fixed or tracker period, then you will likely have to pay an Early Repayment Charge (ERC).

The ERC is calculated as a percentage of the outstanding debt and can be quite significant if you are still in the early stages of your current mortgage.

Most lenders will also charge an Exit Fee to cover the administration cost of closing the account.

There may also be a cost involved with opening the new mortgage. This is in the form of an Arrangement Fee and can be added to the mortgage balance, but by doing so means you will pay interest on it, so it will cost you more in the long run.

Every homeowner has a different set of circumstances, so what is right for you may not be right for your next-door neighbour or your friend on the other side of town.

That’s why seeking independent advice tailored to your unique situation is essential.

We understand that many of our clients will need advice on the subject of contractor mortgages and we can recommend you to a quality firm providing professional mortgage advice that you can trust and who will work hard to find the best solution for you whatever your particular requirements.

We have developed a close relationship with Windfall Finance so that you can draw on their experience and expertise to meet all of your mortgage needs.

Please contact Jeremy – jeremy@cogentaccountants.co.uk  – for further details. You may receive preferential rates from Windfall Finance if you are a client of Cogent.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Financial advice given by Windfall Finance is regulated and authorised by the Financial Conduct Authority.