Skipton Building Society has revised its lending criteria for professional contractors after seeing an increase in demand.
While Skipton used to assess contractors as ‘normal’ self-employed workers and ask for self-employed accounts, it will now use the latest contract day rate instead.
To calculate income, Skipton will use a calculation of daily rate x 5 x 48 (weeks), irrespective of whether the client operates as a sole trader or limited company.
To ensure any additional costs, such as travel expenses, are accounted for the daily rate will be entered as earned income, with tax applied as per full PAYE.
Its revised lending policy will require a minimum of 12 months of contract history, with a minimum two years’ experience in the same field of work, as evidenced by the customer’s CV.
The lender will also require a copy of personal and business bank statements over a one-month period. The minimum annual income, based on daily rate, is £50,000.
In 2018, Skipton Intermediaries linked up with CMME, the UK’s largest contractor specialist broker, to establish how it could improve its real life lending charter and provide mortgage finance for contractors.
Andrew Cutmore, south coast business development manager at Skipton, said: "We’ve always been happy to consider customers employed on a zero hours contract or via an agency, especially where we can see they’ve got a history of earnings.
"However, we were receiving more and more enquiries from contractors employed on ‘day rate’ contracts and they’d often be receiving much higher incomes.
"We identified our existing lending approach didn’t really cater for these enquiries.
"We therefore engaged with specialist brokers in this sector and asked for their input into how we could work closer to provide mortgage finance."
Mr Cutmore said since the launch of the new lending criteria, Skipton has seen a spike in enquiries.
He said: "In the vast majority of cases, Skipton is now able to support these clients with their home-buying aspirations or remortgage plans."
Taj Kang, director at CMME, said: "It was refreshing to see Skipton make live their contractor policy so quickly after initial conversations. They had an open-minded approach to address criteria gaps based on conversations with CMME.
"Skipton then moved quickly to get these gaps addressed and signed off internally, making the policy live within four months from start to finish. If only more lenders were similarly decisive about new product development."
Tracy Gordon, operations director at Mortgage Required, welcomed Skipton’s revised criteria and said more lenders needed to be innovative to meet changes in the workforce.
She said: "More of our clients are working as contractors, where they may be working on zero hours or 12-month contracts.
"Skipton is not the only lender providing for these clients. Halifax, Clydesdale Bank and Metro Bank are in this space also.