Most lenders are only interested in providing mortgages to people who have a fixed annual or monthly salary and their important criteria for assessment is based upon the amount that is earned. The presumption is that only these people are capable of meeting their repayment options without default. This presumption in the mortgage industry is creating problems for contractors or freelance workers to obtain credit easily.
The credit lenders are reluctant to provide finance for contractors, mainly because they are afraid that there is no continuity of work. Without this continuity there is a risk that the client will default on the repayment and therefore their money will be at risk. There are some lenders who are willing to provide mortgages for contractors, but they can charge comparatively high rates of interest. These high standards and rates of interest prescribed for credit loan facilities put a big burden on contractors when it comes to finding finance. Even though the fact is that many self employed workers earn more money than some employed workers.
The main hurdles faced by the self employed when applying for credit is proving how much they earn. They also find it difficult to provide guarantees to prove that they will continue to receive this money in the future, which would obviously reduce the repayment risk. In order to avail mortgages for contractors, you first need to prove your employability, that is, the present work you are performing. They will also assess you on the basis of your past performance.
The lender will assess your market reputation and the profile features of your clients, also your earning potential and your credit worthiness. These are all related to the future and have a certain level of uncertainty. Some lenders do tend to exploit these problems and will offer mortgages but with much higher fees and processing charges, therefore compelling the borrower to pay very high rates of interest. The lending institutions justify this injustice on the basis of the risk involved in the repayment by the service providers. Hence special and difficult criteria are provided for mortgages for contractors.
But now the situation has changed and many lending institutions are coming forward to offer finance for contractors on a reasonable and standard rate of interest without spending much on processing fees. They have made the procedure much simpler so that there is no need to produce company accounts, or to take out overpriced loans in order to pay your mortgage.